Two financial services think-tanks have produced a new ethical framework for Initial Coin Offerings (ICOs) in the hope of cementing London’s place as a self-regulating centre for blockchain-based start-ups and digital currency development. In turn this could help those legal tech start-ups that have been contemplating an ICO, for example, CaseCrunch, but that have not done so yet.
As readers will know, ICOs of digital currencies have faced a major backlash in recent months, ranging from total bans in China, to strongly worded warnings from the SEC in the US and FCA in the UK. This has made life difficult for those legal tech start-ups looking to tap digital currencies as part of their service offering, or as a means of raising funds, as well as the lawyers advising on this growing area of legal work.
The objective of the new ethics framework, to be called the ‘London Fundraising Token Manifesto’ created by Professor Michael Mainelli’s Z/Yen Group with the backing of Long Finance is to create new voluntary standards for ICOs and Initial Token Offerings, which may then assure regulators and investors that such activities are secure and trust-worthy.
The London Fundraising Token Manifesto has been modelled on the Chartered Institute of Investment & Securities Code of Conduct, which includes eight principles, including honesty, integrity and fairness when dealing with consumers.
Professor Michael Mainelli, lead author of the Manifesto, said: ‘Corporate ethical frameworks and professional codes of conduct matter. Over time, ‘my word is my bond’, prevails. This proto-bubble needs a strong dose of self-regulation and we hope our Manifesto …. leads to real behaviour change.’
Antony Abell, signatory of the London Fundraising Token Manifesto and co-founder of blockchain applications company TrustMe, added: ‘The City of London’s financial procedures are looked upon by many across the world as a ‘gold-standard’ to aspire to. This new area is one in which the finance industry can work together with regulators and investors to champion the best elements of ICO fundraising process, cementing London and the UK as a leading destination for the latest cohort of disruptive start-ups.’
Some of the key aspects of the new voluntary code include:
1. Autonomy – ensure that those offered Tokens are informed of what they are and what they represent, why they are necessary, and have the information needed to determine the Token’s value to them, and are entering into such a relation freely:
Is everyone affected by the Tokens aware of the designers’ and promoters’ intended consequences?
2. Beneficence – Tokens should serve a useful and necessary commercial or social purpose:
Have we been truthful about actions or decisions with everyone involved, no material omissions, and told no lies or ‘half-truths’?
3. Non-maleficence – considered thinking has been done on how to reduce the risks and impact of a failure of the Tokens in whole or part, and to ensure self-sustainability after trading begins:
Have we been clear and not misleading to any party?
4. Justice – the social distribution of benefits and burdens are seen to be equitable by the parties engaging with Tokens:
Have we made sure that Tokens will not result in any party being unknowingly disadvantaged or unfairly advantaged, and been fair in token distributions and use over time?
Personal ‘Code of Conduct’ For Token Issuers
1. Trustworthy – To act honestly and fairly at all times, putting first the interests of clients and customers and to be a good steward of their interests and those of counterparties, taking into account the nature of the business relationship with each of them, the nature of the service to be provided to them and the individual mandates given by them.
2. Dutiful – To act with integrity in fulfilling the responsibilities of your appointment and seek to avoid any acts, omissions or business practices which damage the reputation of your organisation, the cyptocurrency, initial coin offering, token, and smart ledger ecosystem, and the wider corporate and financial services world.
3. Lawful – To observe applicable law, regulations and professional conduct standards when carrying out token activities, and to interpret and apply them to the best of your ability according to principles rooted in trust, honesty and integrity.
4. Careful – To observe the standards of market integrity, good practice, conduct, and confidentiality required or expected of participants in markets when engaging in any form of market dealings.
5. Unconflicted – To be alert to and manage fairly and effectively and to the best of your ability any relevant conflict of interest.
6. Competent – To attain and actively manage a level of professional and technological competence appropriate to your responsibilities, to commit to continuing learning to ensure the currency of your knowledge, skills and expertise and to promote the development of others.
7. Contained – To decline to act in any matter about which you are not competent unless you have access to such advice and assistance as will enable you to carry out the work in a professional manner.
8. Aspiring – To strive to uphold the highest personal and professional standards at all times.
The code, which can be found here, also demands that anyone planning an ICO, ask the following questions:
Questions For Token Issuers
1. Do your tokens have a necessary, beneficial, commercial or social purpose?
2. Is it clear to everyone what your tokens represent, e.g. shares in a venture, project rights, a future trading coin, a promise of goods or services, a ‘social’ credit?
3. Do your ‘money supply’ rules or algorithms align value with the commercial or social purpose both immediately and over time?
4. Do you have a mechanism to return fairly any excess or unnecessary resources raised?
5. Do you have the professional and technical resources to deliver?