How does China’s restrictions on ICOs affect Gatecoin?

On Monday, 4 September 2017, the People’s Bank of China (PBOC) announced that:

• All token sales or initial coin offerings (ICO) being conducted in Mainland China are to stop their financing activities with immediate effect
• The organizations and individuals who have already completed token sales in Mainland China are to make arrangements to repay the funds raised to investors
• All token sale platforms and secondary token marketplaces based in Mainland China are to stop providing exchange services

How does this affect Gatecoin?

• Gatecoin is based in Hong Kong, a Special Administrative Region (SAR) of the People’s Republic of China, which has separate legal and regulatory frameworks to those of the Mainland. Therefore we are not subject to any of the directives described in the PBOC’s announcement.
• We have not supported any blockchain token projects based in Mainland China and was not in the process of doing so. Nor do we have the intention to support blockchain token projects based in Mainland China until future regulatory developments.

What impact will this have on the token-sale market as a whole?

Properly structured token sales which focus on financing innovative and game-changing platforms have happened and will happen outside of China. It is likely as a result of these restrictions in China, that future blockchain token issuers will be more considered as far as regulation is concerned and work closer with lawyers and regulators to avoid any legal ramifications across all major jurisdictions.

The only negative impact of these restrictions is that promising blockchain token projects based outside of China will no longer be looking to reach investors based in the Mainland.

Despite the market crashes over the last 24 hours, it is very likely that ether and bitcoin prices will rebound again in the coming weeks given Mainland China’s less significant weighting in global crypto-token markets.

What affect might this have on global regulations?

Most regulators are unlikely to follow suit as their markets were not exposed to the same number and scale of obviously scam projects that had occurred in Mainland China. We believe advanced economies with more robust legal systems and mature financial regulation will follow the example of Canada and release explicit guidelines for token sales.

Specifically, this means clarifying whether token sales are subject to existing securities regulation and if so what processes are required to comply accordingly or apply for exemptions.

Will Hong Kong regulators follow suit?

Given the Hong Kong Monetary Authority’s (HKMA) inaction after the PBOC’s investigation of bitcoin exchanges earlier this year, it is unlikely that they or the Securities and Futures Commission (SFC) are going to “clamp down” on token sales conducted in the SAR.

For one, only a very small pool of investors in Hong Kong have taken part in token sales, and these investors are already involved in the cryptocurrency market and aware of the risks.

As Hong Kong’s legal system is more robust, we have not seen anywhere near the number of scam projects and illegal fundraising activities as we have in Mainland China, because they simply wouldn’t get away with it here to begin with.

Since Hong Kong looks to position itself as a regional and global fintech hub and to differentiate itself from the rest of China, the regulators here should consider developing the territory as a welcoming destination for properly structured token sales.

How will Gatecoin react to future regulations directed at exchanges based in Hong Kong?

Gatecoin has always been in favour of progressive regulation in Hong Kong and we look forward to complying with any future guidelines enforced by the HKMA and or SFC*.

Gatecoin’s foreign exchange business, which does not include our crypto-token exchange services, is licensed as a Money Service Operator (MSO) and is regulated by the Hong Kong Customs and Excise Department, which means that we must comply with the latest anti-money laundering (AML) and counter-terrorist financing (CTF) requirements as described in the AMLO.

We maintain our MSO license to ensure strict AML compliance due to the absence of any formal regulations governing cryptocurrency exchanges based in Hong Kong and look forward to positive regulatory developments in the coming months.

The Gatecoin Team

*UPDATE: As of 5 September 2017, the SFC has released a statement regarding the treatment of token sales in Hong Kong and the ‘possible’ requirements of secondary marketplaces. Gatecoin will prepare a statement in response to this announcement at a later time after clarifying our specific licensing obligations with the SFC.