On October 23, 2017, the Ontario Securities Commission (“OSC”) has granted approval to the province’s first regulated Initial Coin Offering (“ICO”) in a decision (“decision”).  The OSC granted regulatory relief to Toronto-based TokenFunder Inc. (“TokenFunder”). This exempts ToeknFunder from the dealer registration requirements and allows it to carry out an ICO under existing prospectus exemptions subject to certain conditions.

ICOs, sometimes known as Initial Token Offerings (“ITOs”), have been gaining in popularity. They are used by start-up businesses to raise capital from investors through the internet, using a cryptocurrency such as Bitcoin or Ethereum. In many ways, an ICO/ITO can be very similar to an initial public offering (IPO). The coins/tokens can be similar to traditional shares of a company because their value may increase or decrease depending on how successfully the business executes its business plan using the capital raised.

The decision treats the ICOs in the TokenFunder capital raise as a security. The company intends to use the funds raised by the ICO to construct a token issuance and governance platform that will enable third-party investors to raise capital through investments in blockchain-based securities. However, before TokenFunder can operationalize the platform they will be required to return to the OSC for registration as an exempt market dealer.

The decision, which is due to expire after a 12-month period, was granted to TokenFunder with a number of conditions, including that the company conduct know-your-client (KYC) and suitability reviews for each investor and investors will have to be educated to ensure they have a “detailed understanding” of cryptocurrency and digital token offerings. TokenFunder must also establish and maintain policies and procedures to manage the risks associated regarding Ethereum Blockchain, cybersecurity and conflicts of interest between the company and its investors.

For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004.

This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.