New Zealand’s Financial Markets Authority (FMA) has published commentary on initial coin offerings (ICOs) and cryptocurrency related services.

The FMA said that certain characteristics and economic substance of an ICO determine if it’s a financial product. It explains how an ICO token may fall under the scope of debt securities, equity securities, managed investment products, or derivatives, and the regulatory obligations that businesses have to fulfill in such cases.

However, the agency clarified:

“All tokens or cryptocurrencies are securities under the FMC Act [Financial Markets Conduct Act 2013] – even those that are not financial products. A security is any arrangement or facility that has, or is intended to have, the effect of a person making an investment or managing a financial risk.”

It said that New Zealand-based businesses offering financial services (such as exchanges, wallets, deposits, and broking) related to cryptocurrencies need to comply with the Financial Service Providers (Registration and Dispute Resolution) Act 2008. If a token or cryptocurrency is not a financial product or financial service, then the provider will need to comply with the Fair Trading Act 1986 to the extent they are in ‘trade’. The Fair Trading Act also applies to overseas-based tokens and cryptocurrencies offered in New Zealand.

Further, highlighting the risks associated with cryptocurrencies, the FMA said:

“Most online exchanges are unregulated and operate exclusively online, with no connection to New Zealand. This means it is hard to find out who is offering, exchanging, buying or selling. It also makes it unlikely investors will recover their money if things go wrong.”