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Top 5 Practical Things to Consider When Launching an ICO Out of the Cayman Islands
In advising our ICO clients, we have found that there are several practical matters which consistently appear to be either unexpected or not yet planned for. The below is a summary of the top 5 things that should be considered when launching an ICO out of the Cayman Islands.
- Utility vs Security Tokens
Our clients are often concerned with receiving our confirmation as to whether the tokens they are proposing to issue would be considered as utility tokens or security tokens. Typically, this confirmation is a requirement for being admitted on an exchange.
As the Cayman Islands has not yet passed any specific legislation in relation to the regulation of cryptocurrencies or ICOs, this is not a determination that is required to be made under our laws. There is, for instance, not yet any equivalent to the Howey test in the US and so we have no binding guidance to follow.
The treatment of the tokens can, and most likely will, vary from jurisdiction to jurisdiction and so advice should be taken in each jurisdiction in which the Tokens are being offered.
- Getting a Bank Account
Getting a bank account in the Cayman Islands for your token issuing entity is, as with pretty much every other jurisdiction, difficult. Banks are of course nervous to be involved in this fast-moving and newly popular sector.
We have a small network of banks that may be willing to provide accounts to token issuing entities, subject of course to their own criteria being satisfied. We can facilitate introductions to these banks for our clients, but we would suggest this process is started as early as possible to avoid delays with the project later on.
- How to Store Your Crypto
If your ICO is successful, you will likely be receiving large amounts of Bitcoin, Ether and other cryptocurrencies which will need to be safely stored and, more importantly, require due diligence as to their source.
We always advise our clients to seek the services of a custodian to hold these crypto assets in cold storage. We have contacts who can provide such custody services and, in doing so, may also provide an AML review of the crypto assets being contributed from token purchasers. These services can take care of some of the major headaches our crypto clients experience and we can facilitate introductions to these providers for our clients.
- AML Compliance
We advise all of our clients that they are required to comply with the provisions of the Proceeds of Crime Law and the Anti-Money Laundering Regulations. To do so includes adopting written policies and procedures (including as to KYC or due diligence, training of staff, record keeping etc) but, also, the appointment of certain officers such as a Money Laundering Reporting Officer, Deputy Money Laundering Reporting Officer and a Compliance Officer.
Some thought should be given at the outset as to which of the AML procedures will be delegated to service providers and which persons will occupy the required offices.
More frequently, we are seeing our ICO clients wish to separate their token issuing entity from the entity which runs the platform.
That way, there can be a segregation of the liabilities associated with the offering from the operation of the platform and the value being built up in it. The funds raised by the entity are then contributed to the operating entity following completion of the ICO.
This publication is for general guidance and is not intended to be a substitute for specific legal advice. Advice should be sought about specific circumstances.
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