Cryptocurrencies have become extremely popular in New Zealand and this country is the first to legalize cryptocurrency salaries. Despite the growth of digital currencies, New Zealand’s cryptocurrency regulation remains incomplete. The nation hasn’t yet set specific laws to cover all activities involving these assets. However, this does not mean these sectors are unregulated. According to the Financial Markets Authority (FMA), activities related to cryptocurrencies must comply with the “fair dealing” rules in the Financial Markets Conduct Act 2013.

Financial Regulation and Consumer Protection

Cryptocurrencies

In October 2017, the Financial Markets Conduct (FMA) published online regulation related to cryptocurrencies for the purpose to ensure the regulation of these digital currencies. This legislation is supported by the Financial Markets Conduct Act 2013. Thus, any entity that offers a financial service associated with cryptocurrencies must comply with this act. Moreover, most of the new casino sites based in New Zealand or those that offer services to gambling clients are required to register on the Financial Service Providers Register.

ICOs

Regarding the ICOs, the regulation states that each ICO is required to be verified. The majority of ICOs involve the financial service operating a value transfer service and issuing and managing payment methods. Not only can tokens be used to obtain services or goods but they are also acquired as legal tender including New Zealand dollars. Another additional guidance related to ICOs is a token that can be considered as a debt security, equity security, and interest in a managed investment scheme.

As stated by FMA, a regulated offer is a financial product provided to retail investors in New Zealand. However, tokens offered to wholesale investors or those based outside the country is not a regulated offer but it is still subject to the FMC Act. This regulated offer conducts more substantial compliance obligations such as licensing, governance, and disclosure requirements.

Anti-Money Laundering Law

The anti-money laundering obligations may also apply as stated by the FMA guidance on the regulation of cryptocurrencies and ICOs. However, no regulation refers specifically to cryptocurrency exchanges stated by the FMA and other government agencies. Nevertheless, the Department of Internal Affairs (DIA) has a list of reporting entities.

The cryptocurrency exchanges should be encouraged in New Zealand and clear and detailed anti-money laundering regulation by both the Department of Internal Affairs (DIA) and the Financial Markets Authority (FMA) should be implemented.

Regulations of Cryptocurrencies as Financial Securities

Under the FMA regulation on ICOs, a token is considered debt security if it gives rise to dividends or interest payments. To make a regulated offer of a debt security, here are the processes that the ICO issuer should follow:

• Register a product disclosure statement
• Appoint a licensed supervisor
• Meet fair dealing requirements
• Respect financial reporting obligations

The guidance verifies if an asset-backed token could be classified as debt security. Each ICO should be reviewed individually. Utility tokens can be traded on cryptocurrency exchanges or other secondary markets. These tokens are not classified as managed investment products. Profits from trading utility tokens on exchanges are not considered ‘rights to receive a financial benefit’ under a managed investment scheme.

Regarding Equity Securities, the FMA states that a token is equity security if investors buy it or have the option to buy it. This includes equity in a New Zealand incorporated company or a corporate entity incorporated outside New Zealand. An offer of both the token and equity share provides an option to buy a share. According to the FMC Act, issuing a token through an ICO is considered a regulated offer.