In 2018, the island of Anguilla enacted the Anguilla Utility Token Offering Act (“AUTO Act”).
Prior to the AUTO Act, and indeed as continues to be the case in most jurisdictions, there was much global uncertainty as to the characterization and regulation of public offerings of utility tokens. The primary difficulty facing the regulatory community was the global divergence of opinions regarding the categorization of tokens, and potential overlap of traditional securities and tokens which exhibited certain features of such traditional securities (“security tokens”).
The AUTO Act allowed for the creation of the world’s first regulatory framework specifically addressing utility token offerings, by providing a clear categorization for utility tokens and establishing a detailed mechanism for the conduct of a regulated offering of utility tokens in or from within Anguilla. The approach taken by Anguilla in creating this regulatory environment was to analyze the unique issues and attributes arising from a utility token offering and to innovate a new and effective regulatory model to guide and safeguard both token issuers and token subscribers in such offerings.
In much the same way that the AUTO Act was enacted to provide a regulatory framework for a specific blockchain initiative, the rise of token exchanges was also identified as a novel initiative that was similarly in urgent need of regulatory clarity and innovation.
In simple terms, token exchanges that traded in tokens that were considered securities in certain jurisdictions would be required to comply with the regulations governing securities exchanges in the such jurisdictions, whereas exchanges that did not trade such tokens would fall outside the perimeter of such securities regulations, and indeed any other regulatory framework. The issue of course, as was the case with utility token offerings, was the absence of clear definitions allowing for the clear delineation between security token and non-security tokens. The net result of this dilemma was that many (if not all) token exchanges operated in environments of regulatory uncertainty, which represented an unwelcome and unquantifiable risk to such operators.
ANGUILLA UTILITY TOKEN EXCHANGE ACT
Building on the definition of utility tokens established by the AUTO Act, the Anguilla Utility Token Exchange Act, which had its second and third reading in the Anguilla House of Assembly this week, was created to provide a regulatory framework to allow the operation of tokens exchanges, that restricted trading to utility tokens, in a manner that provided clear guidance to the operators of the exchange and robust safeguards for the users of such exchange.
Amongst its numerous innovations, the Anguilla Utility Token Exchange Act provides:
A clear definition of utility tokens, to allow exchange operators to limit trading pairs to utility tokens;
A licensing process to limit the operations of utility token exchanges by fit and proper persons that possess the necessary personnel, resources and technology to operate a safe and efficient exchange;
Audit requirements for licensed exchange operator;
Requirements for the publication of information regarding listed tokens, to allow users of the exchange to make informed decisions;
AMF/CFT requirements for users of licensed exchanges, with specific provisions to be considered by licensed exchanged operators for the effective and efficient collection of user information;
Provisions for the monitoring of exchange transactions to identify marker abuses, and specific liability for users of an exchange who participate in market manipulation, trade rigging and other market abuses;
Potential for self-regulatory organizations with collective regulatory codes;
Legal provisions simplifying the trading of utility tokens under the Laws of Anguilla; and
Legal provisions protecting the custody of user tokens by licensed operators of exchanges in or from within Anguilla.
It is expected that the Anguilla Utility Token Exchange Act will provide a safe and secure regulatory environment for both operators of utility token exchanges and the users of such exchanges, and further enhance Anguilla’s ecosystem for digital ledger technology.
It just goes to prove that Anguilla is really ready for business.
Anguilla: A Forward-thinking Jurisdiction