SEC, FCA & MAS Guidelines on Token-Based MLM Offerings

Running a token-based MLM (multi-level marketing) business sounds exciting on paper. You get a digital token economy, a community of distributors, and a product tied to blockchain technology. But underneath that excitement sits a very real legal minefield, one that has shut down dozens of projects across the US, UK, and Singapore in the last five years alone.

The three regulators that matter most right now are the SEC (Securities and Exchange Commission) in the United States, the FCA (Financial Conduct Authority) in the United Kingdom, and the MAS (Monetary Authority of Singapore). Each of them has published specific frameworks that apply to how tokens are sold, promoted, and distributed inside multi-level or network marketing structures.

We have spent over eight years helping blockchain ventures, token issuers, and direct-selling networks navigate these exact compliance challenges. What follows is a practical breakdown of each regulator’s expectations, the tests they apply, the penalties they enforce, and what a responsible token MLM structure actually looks like on the ground.

What Are Token-Based MLM Offerings, Exactly?

A token-based MLM offering is a business model where participants are recruited into a multi-level network and rewarded with digital tokens for sales activity, referrals, or both. The tokens may have monetary value on a cryptocurrency exchange, be redeemable for products or services, or function as governance rights within a platform.

The issue regulators focus on is not the token itself but the combination of financial incentive structures. When tokens serve both as a product reward and a recruitment incentive, the structure starts to look like a financial instrument tied to a pyramid-like compensation plan. That is when SEC, FCA, and MAS attention tends to arrive.

To understand the broader blockchain context behind these networks, our guide on blockchain MLM networks covers the foundational architecture. What matters for this article is how that architecture is seen through a legal lens.

According to the FTC’s business guidance on multi-level marketing, a legitimate MLM must derive the majority of revenue from actual product sales to real consumers, not from enrollment fees or token purchases by new recruits. Token MLMs that fail this test face immediate scrutiny.

SEC Guidelines: How the US Regulates Token MLM Offerings

The SEC does not have a specific law for token MLMs. Instead, it applies existing securities law, primarily the Securities Act of 1933 and the Securities Exchange Act of 1934, to any token it determines qualifies as a security.

The primary tool the SEC uses is the Howey Test, derived from the 1946 Supreme Court case SEC v. W.J. Howey Co. A token qualifies as a security if it involves an investment of money in a common enterprise with the expectation of profits derived from the efforts of others. In a token MLM, where participants join by purchasing tokens and earn more tokens by recruiting others, almost every element of this test is met.

The SEC has pursued enforcement actions against several token-based projects that operated through referral networks. In these cases, the fact that participants were promised returns based on recruitment activity was enough to trigger securities law regardless of whether the token had a “utility” attached to it.

For token MLM operators in or targeting the US market, the practical implications are:

• If the token is a security, it must be registered under the Securities Act or sold under an exemption (Regulation D, Regulation S, or Regulation A+).
• Promoters and distributors who solicit participants may qualify as brokers under federal law and require FINRA registration.
• Marketing materials cannot make forward-looking profit claims without adequate risk disclosures.
• Smart contract-based MLM reward systems do not exempt the operator from these requirements simply because the system is automated.

FCA Guidelines: Token MLM Rules in the United Kingdom

The UK’s Financial Conduct Authority has been particularly active in regulating crypto promotions since the passing of the Financial Services and Markets Act 2023 (FSMA 2023), which brought cryptoasset promotions fully under the UK financial promotion regime.

The FCA classifies cryptoassets into three broad categories: exchange tokens (like Bitcoin), security tokens (representing financial claims), and e-money tokens. A fourth category, utility tokens, sits outside formal FCA regulation but is still subject to consumer protection and promotion rules if it is being sold or promoted to UK consumers.

For token MLMs specifically, the FCA’s position is clear from its published guidance on financial promotion expectations: firms must consider whether platforms using affiliate or referral reward structures fall within the definition of financial promotions, and if so, they must be communicated by or approved by an FCA-authorised person.

The specific issues for token MLMs in the UK include:

• Any promotion that incentivises someone to refer others to a cryptoasset product likely qualifies as a financial promotion and must be registered with the FCA.
• Unregistered token MLM promotions sent to UK consumers can result in criminal prosecution with up to two years imprisonment.
• The FCA requires all financial promotions to be fair, clear, and not misleading. Income projections, token price forecasts, or claims of guaranteed returns violate this standard.
• UK consumers who invested based on illegal promotions have a right to unwind the investment and claim compensation.

The FCA has added over 1,500 companies to its warning list in recent years, a significant portion of which involved crypto token referral schemes. That number alone should signal the seriousness of the regulator’s intent.

MAS Guidelines: How Singapore Approaches Token-Based MLM

Singapore has positioned itself as a crypto-friendly jurisdiction, but MAS has been precise in defining the rules. The Payment Services Act (PSA) 2019, the Securities and Futures Act (SFA), and MAS’s own guidelines on digital token offerings together form a comprehensive framework.

According to MAS’s guidelines on standards of conduct for marketing and distribution activities, financial services firms and intermediaries must ensure that marketing materials do not mislead customers about the risks or returns of financial products, including digital tokens.

For token MLM operators using Singapore as a base or targeting Singaporean consumers:

• If the token is a capital markets product under the SFA, a full prospectus or exemption is required before it can be offered to the public.
• If the token is used as a digital payment token (DPT), the operator must be licensed under the PSA or hold a Major Payment Institution licence.
• Pyramid selling is explicitly prohibited under the Multi-Level Marketing and Pyramid Selling (Prohibition) Act in Singapore. Token-based structures that rely primarily on recruitment income rather than genuine product value fall under this prohibition.
• MAS requires all regulated entities to comply with FATF travel rule requirements, which means tracking and reporting token transfers between MLM participants above a certain threshold.

SEC vs FCA vs MAS: A Compliance Comparison for Token MLM Operators

The table below gives you a quick reference for comparing how each regulator approaches the same compliance questions. While the goals are similar, the specific tests, penalties, and licensing requirements are quite different.

The Token MLM Compliance Lifecycle: From Design to Operation

Compliance is not a one-time checkbox at launch. It is a continuous process that starts the moment you begin designing the token economy and continues for as long as the project is live. Here is how the key stages break down:

Real-World Example: What a Non-Compliant Token MLM Looks Like

This pattern is unfortunately common. The lesson is not that token MLMs are inherently illegal. The lesson is that compliance must be built into the design, not retrofitted after launch when regulators are already at the door.

Most Common Compliance Mistakes in Token-Based MLM Projects

How to Build a Token MLM Structure That Can Actually Pass Regulatory Review

There is no single formula that makes a token MLM automatically compliant. But there is a set of structural decisions that significantly reduce exposure across all three jurisdictions. Here is what our team consistently recommends to clients building in this space.

The first decision is token design that separates reward from investment. Tokens used in the compensation plan should not also function as tradeable financial instruments unless the full securities registration process has been completed. A utility token that gives access to a platform service, with clearly defined use cases and no expectation of appreciation, is far less likely to trigger the Howey Test.

The second decision is building compensation primarily on product sales. The FTC’s guidance on MLM, referenced earlier, makes clear that a legitimate network marketing business must demonstrate that participants earn primarily from selling real products to real consumers, not from recruiting new members. This same standard is used as a reference point by FCA and MAS when assessing whether a token distribution scheme constitutes a pyramid operation.

The third decision is geo-fencing for jurisdictions where you are not licensed. If you hold a MAS Major Payment Institution licence but not an FCA registration, you must actively prevent UK consumers from participating. This means IP blocking is not enough. You need contractual restrictions, geo-targeted onboarding, and verified user location at KYC stage.

The fourth decision is promotional content review before any affiliate or referral network is activated. Every piece of content shared by a distributor or referral partner that promotes the token offering to new participants is potentially a financial promotion. FCA in particular holds the issuer liable for the communications of its distributors.

If you are at the planning stage of a token-based direct selling project, our work on blockchain MLM regulation provides a useful foundation for understanding what a compliant architecture looks like in practice.

“In our experience working with over 1200 token and blockchain projects across three continents, the single biggest compliance failure is not the token design itself. It is the promotional structure. The moment you add a referral reward to a crypto promotion, you have introduced a layer of financial regulation that most teams are not prepared for. Building compliance into the affiliate model from day one is not just smart, it is the only way to scale across multiple jurisdictions without eventually facing a shutdown.”

Compliance Strategist, Blockchain MLM Advisory Practice (8+ years, 1200+ projects)

Quick Reference: Licensing Requirements by Jurisdiction

A Note on Multi-Jurisdictional Operations: India and Beyond

While this article focuses on the SEC, FCA, and MAS, many token MLM operators also have significant participant bases in India. India has its own regulatory complexity. The Ministry of Consumer Affairs issued direct selling guidelines that govern how MLM businesses must operate, and India’s government rules for MLM companies require formal registration, transparent compensation disclosure, and a cooling-off period for participants.

For those exploring how to formally incorporate an MLM entity in India, Taxmann’s expert guide to starting an MLM company in India offers a practical breakdown of the legal entity structure, SEBI requirements, and direct selling guidelines that apply.

The broader point is that token MLM operations targeting participants in multiple countries must conduct a separate regulatory analysis for each major jurisdiction. There is no single “global licence” that covers token-based MLM activity across the US, UK, Singapore, and India simultaneously.

The Bottom Line: Compliance Is Not a Barrier, It’s a Foundation

Many founders come to us worried that compliance will slow them down or price them out of the market. The opposite is true. Projects that launch without regulatory clarity either fail to scale because institutional partners and exchanges will not touch them, or they face enforcement actions that cost far more than compliant launch would have.

The SEC, FCA, and MAS are not trying to eliminate token-based businesses. They are trying to ensure that participants are protected, that promotions are honest, and that operators have taken responsibility for the financial instruments they are putting into the market. These are standards that any serious long-term business should want to meet.

Whether you are running a cryptocurrency MLM software platform or launching a new token-based direct selling network, the framework exists to help you do it right. Use it.

For a broader look at global MLM regulation across different regions and business types, our guide on MLM meaning, types, benefits, and global regulation is worth reading alongside this one.