Category Archives: ICO Regulation

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Joint Investigation finds SEC Damaging to US Blockchain Startups

An investigation conducted by Yahoo Finance and Decrypt Media has found that the United States Securities and Exchange Commission (SEC) has been “putting blockchain startups at risk” with an expanded crackdown on initial coin offerings (ICOs).

Startups are suffering

In the report from Decrypt Media on 10 October, the authors describe the SEC as “exerting pressure” on companies that it issued subpoenas to earlier in 2018 and furthermore, has subpoenaed more, apparently targeting those who failed to sell their tokens “exclusively to accredited investors”.

As a result, companies have been refunding investors and paying fines, many other startups have struggled to meet the requirements of the SEC, describing themselves as being “left in the dark” on how to satisfy the regulatory watchdog.

The battle to classify cryptocurrencies in the US has been an ongoing and tremendously tricky one for those with desires to start a blockchain or cryptocurrency enterprise, and for those who wish to see the industry flourish in the States.

Recent events

Earlier this year, the SEC stood firm with its decision to classify digital tokens issued via an ICO as securities, a decision that John McAfee spoke out against. Though this classification does not apply to Bitcoin or Ethereum, issuing a token sale in the US is considered arduous if not almost impossible for startups.

As a result, several private entities and organizations in the United States have formed, banded together and begun tackling this notion alongside governmental bodies; both the Chamber of Commerce and the Commodity Futures Trading Commission (CTFC) have called for a sound regulatory environment, one in which blockchain projects can at least be tested in a sandbox similar to that of the United Kingdom.

In July, the Chamber of Digital Commerce (CDC) released a publication that offers itself as a guideline on ‘Understanding Digital Tokens’, written for the benefit and education of policymakers and practitioners. The paper outlines distinct attributes for various types of tokens, placing the blanket token classification of Securities under question.

Regulatory uncertainty

Industry figures also wrote a letter to the SEC outlining their position on the “intrusive” nature of SEC regulations. The letter claims that the securities classification is causing domestic companies to leave the US in search of greener, more accommodating pastures.

The Blockchain Association was also recently formed to lobby the American government and push for regulatory clarity as well as define best-interests for both the crypto or blockchain industry and the American economy.

According to the report, firms claim that they are unable to communicate with other firms and work out how to handle the matter; and according to a high-profile securities attorney, are supposedly “holding their breath” awaiting new rules from the SEC, but are in no way confident that they will be providing any.

 

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European Commission Vice President Believes Crypto Has Place in Future

The vice president of the European Commission has said that “crypto-assets are here to stay” at the second informal Economic and Financial Affairs Council (ECOFIN) press conference.

Progressive

At the ECOFIN press conference in Vienna, vice president Vladis Dombrovskis spoke of the discussion between himself and other ministers, describing it as a “good exchange” with regards to the future of cryptocurrencies and initial coin offerings (ICOs).

In his speech, Dombrovskis said, “We also had a good exchange of views on crypto-assets. We see that crypto-assets are here to stay. Despite the recent turbulence, this market continues to grow.”

He continues, “In particular initial coin offerings, or ICOs, we see they have the potential to emerge as a viable form of alternative financing. Already last year, ICOs helped raise over 6 billion dollars in funding and this year this figure will be substantially bigger.”

These positive remarks are however underpinned by a somewhat cautious attitude; he highlighted risks such as investment protection, market integrity, as well as money laundering among other nefarious activities that regulators, governments and industries are trying to stamp out or protect themselves against.

Dombrovskis asserted that there is a “need to continue monitoring developments in this area”, calling upon international partners such as the Financial Stability Board or G20 to cooperate.

Describing the challenges imposed by digital currencies, he cited a common issue that has plagued the progress of legislation and regulation which is the classification and categorization of digital assets. This would determine “whether and how to apply existing EU financial rules to these new assets or if we need new EU rules”.

Crypto-competence

Australia has been tackling this issue head on, while developing a means to tax cryptocurrencies. Several steps were been taken to define digital assets in a taxable context as accurately as possible.

The US has been wrestling the issue in a similar manner. The Supreme Court of the United States ruled on 21 June that Bitcoin could be used as a currency; this came as a result of a hearing that debated whether stock options can be taxed the same way that cash earnings are.

Earlier in June, the US Securities and Exchange Commission (SEC) declared that Bitcoin and Ethereum would not be regulated as securities; the subject digital assets being classified as securities in the states has been an ongoing matter for some time.

At the tail end of the speech, the vice president said that there is an ongoing effort between ECOFIN and the European Supervisory Authorities that he called “regulatory mapping of crypto assets”. Member states are in support of the mapping effort and Dombrovskis is expecting the assessment to be concluded this year.

The European Parliament recently held an all-party meeting that examined proposals for ICO rules. No formal statements have emerged from this discussion as of yet, but the speech given by Dombrovskis appears to echo the progressions made across departments of the EU.

 

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South Korean Financial Regulator Calls for “International Discipline System” for Crypto and ICOs

The governor of the South Korean Financial Supervisory Service (FSS) has made calls for an “international discipline system” for cryptocurrencies and initial coin offerings (ICOs).

International Discussion

The 20th annual Integrated Financial Supervisors Conference (IFSC) was held from September 6th to 7th in Seoul. In attendance were officials and regulators from fourteen other countries including Japan, Canada, Australia, Singapore, the United Kingdom, and Germany.

They had gathered to discuss global regulatory issues. The South Korean FSS governor, Yoon Suk-heun brought to light that new financial services such as cryptocurrencies and fintech display potential risks for consumers. He urged for a global regulatory system to be put in place.

During the opening ceremony of the IFSC event, Yoon said: “For new risks involving cryptocurrencies, we must calm overheated speculation and crack down on illegal activities.”

In addition to this, according to the Korea Times, Yoon added, “The authorities are in a difficult situation to minimize the side effects while encouraging financial innovation… The aim is to calm overheated speculation and prevent illegal activities against new risks associated with virtual currency or initial coin offerings (ICOs)… We need to create an international discipline system, which can only generate regulatory gains between countries.”

Leading by Example

Yoon echoed the blockchain savvy crypto-positive sentiments that are commonly espoused by South Korean enthusiasts. He went on to elaborate on the present countermeasures in place for emerging or disruptive financial services, such as cryptocurrencies and ICOs.

He explained that the current system includes a “supervision method for effective internal control and compliance of financial companies, the direction of financial consumer protection system and financial inclusion policy, [and the] effective anti-money laundering system and how to operate it.”

The governor has hopes that information sharing and international cooperation will be bolstered, believing that “internal control of financial companies is a way to safely manage customers assets and maintain sound management.”

Yoon added, “Korea has faithfully implemented international supervision standards such as reporting doubtful transactions, confiscation of criminal proceeds related to the prevention of money laundering, and expanding the exchange of information between countries.”

Across the Globe

The European Union Parliament has been hot on the heels of creating a unified set of regulations for ICOs and cryptocurrencies with some members of the discussion acknowledging that the market is seeking legitimization and that these regulations need to be made with a sense of urgency.

Other nations are successfully implementing their own regulatory guidelines. Most recently, Uzbekistan legalized cryptocurrencies. In the Philippines, cryptocurrency exchange and ICO regulations are in the process of being finalized.

Other nations including South Korea are still fine-tuning the regulatory side of the industry, Canada has postponed their release of regulations until 2020, and China is presently struggling to manage legal cases related to cryptocurrency due to unclear regulations.

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Draft Proposal from EU Official Proposes ICO Regulations

Initial coin offerings (ICOs) could be receiving acknowledgment toward a legitimized future, according to a draft report on regulations from the European Parliament.

The European Parliament’s Committee on Economic and Monetary Affairs (ECON) has published a draft report that offers insights to new regulatory frameworks for crowdfunding; interestingly, ICOs received a notable mention.

Bullish backing

According to the draft, while the proposed amendments to crowdfunding regulations don’t entirely meet all the requirements to sufficiently regulate ICOs, the report positively writes that “it takes a much-needed step towards imposing standards and protections in place for what is an excellent funding stream for tech start”.

Ashley Fox, an MEP representing the UK who spearheaded the draft, has been somewhat bullish on blockchain since 2016. After a Blockchain Conference and Expo held at the European Parliament, ECON voted against “hasty regulatory steps” due to the lack of understanding what blockchain can do.

Fox was quoted saying, “There is a consensus in the Parliament, that policymakers should be careful not to regulate the technology out of existence.”

His proposals now indicate that a better understanding of the space has been achieved to some degree, and now appropriate inroads towards regulating token sales with a proper legal framework are underway.

Right direction

The proposal offers a solution to the notoriously fraudulent waters of the ICO markets, and also opens up the chance for ICOs to prove their worth. The paper writes, “At present initial coin offerings are operating in an unregulated space and consumers are at risk from fraudulent activity taking place in this market. This Regulation gives the opportunity to ICOs that want to prove their legitimacy to comply with the requirements of this regulation.”

The new rules proposed state that crowdfunding service providers “should be permitted to raise capital through their platforms using certain cryptocurrencies”. Furthermore, the report details that the newly proposed regulation applies only to public sales which raise less than EUR 8 million.

Positive proposal

There is an emphasis on the need for regulation in this space and once this regulation is implemented, it will generate a new level of protection for the crypto-community, which could generate positive world-views of the nascent industry and boost it as a whole.

The draft proposal, however, is not binding nor is it final. Fox acknowledges that there will need to be changes made should the proposal be put into an official motion.

 

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Lithuanian Ministry of Finance Reveals Guidelines on ICO Tokens

The Lithuanian minister of finance considers the country to be in the “middle of explosion of ICOs and blockchain based projects”, as the ministry published a thoughtful guideline document that acknowledged “the brave new crypto economy world”.

In the document, the guidelines bring to light how cryptocurrencies should be regulated and taxed. It outlines that they are recognized as having the characteristics of securities, although for tax purposes, it doesn’t mean that they will necessarily be treated the same way.

The ministry of finance also splits cryptocurrency classifications into two parts regarding the recommended frameworks, which depends on whether a token “grants profits or governance rights”.

This applies to investors who acquire tokens through initial coin offerings (ICOs); though the existing legislature applies to “payment tool” tokens or access to particular products, the report recommends that several regulatory standards should be applied if a token grants profits or governance rights.

The ministry report breaks down ICO tokens into a variety of areas such as tokens that are issued, the ICO operator, if it participates in secondary market exchanges and whether the ICO is a crowdfunding activity.

Regarding taxation and asset class, the report reads:

“In terms of Corporate Income Tax and Personal Income Tax, according to the substance and economic sense of transactions, the virtual currency is recognized as current assets that can be used as a settlement instrument for goods and services or stored for sale.

For the purposes of VAT, the virtual currency is considered as the same currency as euros, dollars etc. For the purposes of other taxes, other type of instrument, e.g. certain types of tokens, may be recognized as a virtual currency as well.”

Earlier Discussions

In October 2017, the Lithuanian Central Bank issued an “approved position” on virtual currencies. Marius Jurgilas, Member of the Board of the Bank of Lithuania, described them as “an instrument involving high risk”. He went on to say that financial institutions that were operating legally and arewerealso under the supervision of the Bank of Lithuania “must strictly disassociate themselves” from them.

The October 2017 document raises awareness for financial services who engage in cryptocurrencies, the document had the intention to inform that these activities leave them open to the possibility of financial crimes, terrorism financing etc.

The report suggests that should financial market participants wish to do so, they would need to adhere to strict compliance requirements to prevent such matters.

However, in April 2018, the Central Bank of Lithuania began crucial discussions exploring the uses of cryptocurrency, engaging with commercial banks, government regulators and traders with the goals of creating a faster and affordable means to license the operation of ICOs.

The Baltic state of Lithuania is host to approximately 3 million inhabitants and, much like other small economies such as Malta and Gibraltar, it has successfully been an early adopter of cryptocurrency and blockchain projects. Should it manage to implement these guidelines, Lithuania will be a positive frontier for cryptocurrency and blockchain-related projects.

 

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This Year’s ICO Funding Has Exceeded All of 2017

Initial coin offerings (ICOs) continue to rise in popularity; in the first three months of 2018, ICOs have managed to generate more money than they did for the entirety of 2017. According to the data collected by CoinDesk, that figure sits at USD 6.3 billion, 118% of the 2017 total.

It appears that despite the numerous minor and higher profile controversies that ICOs have been tied to, the digital funding method is rapidly gaining confidence across the board. In the winter of 2017, the markets were piping hot and yet, ICOs were cooling off.

Uncertainties caused by ICO bans were partly to blame for the dip in confidence, especially the prohibitions from South Korea and China which are two very prominent market forces. This news further fuelled the doubt of cryptocurrencies and the technology being stifled entirely, but as the numbers show, ICOs are thriving.

ICOs on the rise

The data reveals a month-on-month increase from December, which was at USD 1.44 billion. In January, that figure rose to USD 1.79 billion; in February it grew to USD 2.38 billion, a significant rise which preceded a minor dip in March which brought in USD 2.15 billion.

The leap in the numbers can be attributed to the increased size and rate of the average ICO; Q1 of 2018 has already launched 59% of the total ICOs that were launched the previous year. However, it is important to note that the figure is slightly skewed – Telegram had a gigantic ICO which raised USD 1.7 billion, but minus that figure and Q1 2018 ICOs stand at 85% of the 2017 total, which is still no small feat.

So far in 2018, 200 ICOs have taken place, (343 in total for 2017) and most of them are raising less than USD 100 million.

Growing a global ICO consensus

The US has also provided positive insights into future attitudes towards ICOs; the chairman of the Securities and Exchange Commission (SEC) Jay Clayton made comments suggesting that ICOs are securities, and can be classified and regulated as such, reducing risk and encouraging blockchain entrepreneurship.

It’s is widely understood that ICOs carry a high risk for investors, especially to those looking in from traditional investment positions. At the heart of the ICO issue is global regulatory uncertainty. Without a global consensus on how to legally operate and tax ICOs, the modern digital fundraising method will still have some hurdles to overcome.

As the year rolls on, conversations regarding ICO and cryptocurrency regulations have gone from skepticism to intriguingly progressive sentiment; France, the United Kingdom, Japan, South Korea and other countries are looking to make ICOs and their related technologies safe and fair for investors. They have the foresight to see that the technology will flourish should the “bad actors” within the industry be forced to work within legal, regulatory frameworks.

 

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UK Financial Conduct Authority to Deliver Crypto Regulation Analysis in 2019

The United Kingdom’s cryptocurrency regulation is slowly taking shape as its Financial Conduct Authority (FCA) has announced that they will be analyzing the risks and benefits of blockchain technology and cryptocurrencies.

Regulation in the UK

The FCA, Bank of England and the UK Treasury are working together on a discussion paper for cryptocurrencies which will be revealed in 2019. The coming UK crypto regulations are geared toward attracting businesses based in Continental Europe.

The FCA Business Plan 2018/19 states:

“Cryptocurrencies has been an area of increasing interest for markets and regulators globally. In the UK, the Treasury Committee has announced that it will be launching an enquiry, to which we intend to respond.”

The plan continues:

“Cryptocurrencies themselves (i.e. those designed primarily as a means of payment/exchange) are not currently within our regulatory perimeter. However, some models of use or packaging cryptocurrencies bring them within our perimeter, making the landscape complex.”

Regulation around the world

The FCA has previously warned consumers regarding the risks of initial coin offerings (ICOs). The popular crowdfunding method for blockchain startups has been part of a miasma of controversies causing ICO bans in countries like China, which is still having issues with ICO and cryptocurrency projects getting past the Peoples Bank of China’s (PBoC) strict rulings.

There are very few countries around the world that have outright bans on ICOs, and many of the governments within their respective countries are taking a look at the possibility of future regulations.

Most countries have banned ICOs due to fraudulent actors, scams, security risks and money laundering; however, several are attempting to create definitions and legal frameworks that can accommodate the technology and utilize the long list of benefits that come with it.

Protecting consumers and the technology

In February, the UK Treasury Committee launched an inquiry into cryptocurrencies and distributed ledger technology, stating that one of its goals is to provide protection to consumers and businesses without stifling innovation. MP Nicky Morgan, committee chairman, said:

“People are becoming increasingly aware of cryptocurrencies such as Bitcoin, but they may not be aware that they are currently unregulated in the UK, and that there is no protection for individual investors… We will also examine the potential benefits of cryptocurrencies and the technology underpinning them, how they can create innovative opportunities, and to what extent they could disrupt the economy and replace traditional means of payment.”

The FCA also released a statement in response to the UK’s growing number of cryptocurrency and blockchain firms describing that cryptocurrency derivatives could be classed as financial instruments, meaning that tokens issued through ICOs could require FCA authorization.

While the FCA doesn’t quite have a clear idea on how to manage or regulate cryptocurrencies and ICOs, it is evident that the regulator intends to embrace distributed ledger technology and, in doing so, enable blockchain-related businesses and innovations to thrive in the UK.

 

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