The issue of ICO regulation has been a thorn in the flesh in most countries. Initial Coin Offering (ICO) was officially invented in 2017 after cryptocurrencies and blockchain gained momentum and the value of cryptocurrencies skyrocketed giving everybody an appetite to invest in them. But it appears all these developments caught most if not all financial regulatory bodies flat footed and they were not able to craft laws to regulate the market.
In general, ICOs are poorly regulated and countries are doing all they can to put in place some governing rules for the ‘easy fundraising tactic’ that has been adopted by most Silicon Valley startups. Some countries like China and South Korea have already banned ICOs and as things stand there could be more countries like India that may follow suit.
But why all the fuss about ICO regulation?
ICOS offer an easy way of raising funds without having to follow the long process of accessing Bank Loans. With ICOs, anyone can raise whatever amount of money they want as long as they get people to like what they are doing.
Since anyone can offer an ICO, fraudsters have gotten an opportunity of conning people off their money by floating fake ICOS. They collect money from people and later the project collapses. Since everybody knows in ICOs there are high risks the project being fundraised for could fail, the fraudsters get away with the money without anyone questioning them.
ICO regulation by key cryptocurrency players
Let us look into some of the countries that have greatly adopted cryptocurrencies and see what they have done in response to ICOs.
China was the first country to ban ICOs despite the fact that it is the leading country in terms of blockchain adoption.
There have been resistance towards the ban but People’s Bank of China has issued a new warning to people regarding the investment in ICOs.
South Korea has a very huge cryptocurrency user base. However, in 2017 it banned ICO listing terming them as unlicensed financial activities.
However, Korean legislative arm has been pushing for the government to lift the ban though there are recommendations that the ban can only be lifted if there is proper legislation to protect citizens from scammers.
Following the ban of ICOs in South Korea and China, developers flocked Switzerland and Singapore since the two countries seem to have a favoring environment for ICOs.
In November 2017, immediately after the banning of ICO in South Korea and China, the Monetary Authority of Singapore (MAS) issued a guideline on how the digital token offerings will be undertaken. Any offer or issuance of digital token sales is supposed to comply with the securities laws and it is regulated by the MAS.
Switzerland is one of the countries that has done a lot in terms of regulating the cryptocurrency industry. The Swiss Financial Market Supervisory Authority (SFMSA) has actually come up with guidelines to regulate both cryptocurrencies and ICOs. The guidelines have stipulated how tokens are categorized.
The ICO guidelines make Switzerland friendly to blockchain-related businesses and developers are relocating their businesses there.
Malta is also another country that has done a lot in regard to regulating cryptocurrencies. It already has well-laid regulations for any cryptocurrency related activity and it has also created a supervisory body for cryptocurrencies. The supervisory body goes by the name Malta Digital Innovation Authority.
To date, the European Union does not have a specific framework of regulations governing cryptocurrency related activities. However, regulators are reported to be working vigorously to come up with regulations for the industry.
Currently, each European country seems to be adopting its own approach.
There have been a number of ICO and cryptocurrency reported cases in the US and the SEC to seem to be struggling to even handle the issues. Currently, there are no specific rules governing ICOs in the US.
The current legal framework interprets ICOs as investment contracts and these make cryptocurrencies securities.