The Isle of Man and ICOs – Practical Guide

There has been a much publicity concerning the suitability of Isle of Man as a juridiction to host ICOs. Much of this publicity results from a recent Coindesk article entitled Isle of Man to Unveil Friendly Framework for Token Sales.

We have asked the relevant people at the Isle of Man Government to comment on this and have been informed that

“No new announcement or framework is proposed rather they are referring to a ‘re-purposing’ the existing Isle of Man regulatory rules that apply to virtual currency businesses.”

The existing rules applying to virtual currency business are summarized here. The good news is that the legislation does provide a good degree certainty over the requirements, on the other hand, the rules are not light touch and it is questionable how suitable they are in the context of conducting an ICO unless the business carrying out the ICO is already sufficiently well capitalised to carry the significant cost overhead of complying with them.

This cost burden referred to above flows from..

(1) Company administration fees payable to a local Corporate Services Provider (CSP) relating to the set up and annual administration (Registered office / Agent/ nominated officer) of the Isle of Man company. One year costs – estimate GBP5,000-GBP10,000.

(2) The cost of dealing with the requirements of Anti-Money Laundering and Countering the Financing of Terrorism Code – incl. collect and review compliance information on every investor, prepare a compliance manual, risk rate token holders, appoint and pay Isle of Man money laundering reporting officer, register as designated business, maintain all records in the Isle of Man, deal with inspections from Isle of Man Financial Services Authority. Annual fees – perhaps GBP30,000 annually

(3) Isle of Man Legal Fees. Difficult to estimate but as the CSP is a regulated person who is responsible for the ensuring compliance with local rules, it is likely they will require Isle of Man legal sign-off of the ICO plans. Cost – Estimate GBP5,000-GBP10,000

Based on the above, the ‘up front’ costs could easily amount to GBP50,000; which would need to be covered before conducting the ICO. It is also interesting to note that the cost and complexity, at least from the Isle of Man perspective, undoubtedly exceeds the cost of a traditional offer of shares for investment via a public offer as such offers are relatively light touch regulation in the Isle of Man. See here for more information on Isle of Man offers.

Conclusion.

The Isle of Man legal framework offers certainty to companies wishing to conduct an ICO, and this is potentially highly beneficial; however, the reality it is only suitable for projects that are already mature, well capitalised and are prepared to address the non trivial Isle of Man regulatory regime and its associated costs. This stance is deliberate and unsurprising….as mentioned by Brian Donegan the Islands Government head of operations for fintech and digital development “What we’re about is keeping consumers safe and keeping crime out.”

©2017 Middleton Katz Chartered Secretaries LLC is licensed by the Isle of Man Financial Services Authority

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