Author: Adam Killip
At DQ, we are seeing a large number of enquiries from financial technology (Fintech) start-ups and entrepreneurs seeking to use the Isle of Man to launch digital token projects, by selling digital tokens or coins to investors. These relatively new methods of raising finance are commonly referred to as ‘token sales’ or ‘initial coin offerings’ (‘ICOs’) and effectively represent a new method of crowdfunding start-up projects and new business ventures using distributed ledger technology such as Blockchain or Ethereum.
The Isle of Man represents a very attractive choice for anyone looking to raise capital via a sale of digital tokens, for a number of reasons.
Firstly, the Isle of Man Government wants to encourage quality new business on the Island in this relatively new industry. A representative from the Department of Economic Development (soon to be re-named the Department for Enterprise), which is responsible for attracting inward investment to the Island, has publically stated that the Department is keen to attract reputable Fintech businesses to the Island (as reported recently on industry websites Bitcoin.com and Coindesk.com)
Secondly, and most importantly, the Island already has in place a permissive regulatory regime designed to encourage crypto businesses whilst at the same time ensuring that any prospective sales of digital tokens meet internationally-required standards of compliance with anti-money laundering (AML) and countering the financing of terrorism (CFT) regulations. Anyone wishing to offer some form of digital asset or cryptocurrency from the Isle of Man must as a minimum register with the financial services regulator as a ‘designated business’ under the Designated Businesses (Registration and Oversight) Act 2015 (the “DB Act”). In practice this means that digital start-ups will need to show the regulator that they have adequate procedures in place to risk-assess their investor base and that they are able to ensure that the funds they receive from investors do not raise concerns from an AML or CFT perspective. Depending upon the characteristics of the digital tokens to be offered to investors, other regulatory approvals may be necessary under the Financial Services Act 2008 (the “FSA 2008”) and we would strongly recommend that those looking to do business in this sector take appropriate professional advice in each case.
Finally, the Isle of Man has the infrastructure to support the Fintech sector, with a highly-skilled workforce, large data-hosting capabilities and attractive incentives for those who wish to relocate themselves or their business here.
The Isle of Man Government’s positive attitude, and the robust regulatory regime described above, both place the Island at the forefront of this emerging industry. In an era where compliance with international standards of AML and CFT is absolutely vital, the Isle of Man offers a professional, well-regulated and credible solution to those looking to establish quality business here, particularly at a time when some other jurisdictions are either prohibiting digital token sales completely, or are still formulating a legislative framework for them.
It is of course important to stress that, as with any industry, some opportunities in the Fintech sector appear more credible than others and there have been reported instances of distributed ledger technology being misused by criminals and fraudsters. The Isle of Man Government and the professional services industry on the Island are keen to attract top-quality businesses to the Island which are committed to the highest standards of compliance.
It is worth pointing out that historically some businesses operating in the crypto and digital token sector on the Island have experienced difficulties in establishing banking operations due to reluctance from the major clearing banks to accept crypto business. We believe that with ongoing support from Government and an increase in the acceptance of digital currencies generally, this problem should start to become less acute.
For further information as to how DQ’s specialist team can advise you on the legal and regulatory requirements in this developing area (including advising on relevant corporate structures on the Isle of Man and applications under the DB Act or FSA 2008) please contact Adam Killip or Hazel Dawson.
