A Timeline of National Regulatory Warnings on ICOs
July 25, 2017: United States Securities Exchange Commission
Here is a timeline of regulators statements on ICOs
July 25, 2017: United States Securities Exchange Commission
The United States Securities and Exchange Commission was the first regulator to speak out on ICOs on July 25. The agency stated offerings and sales of digital tokens fell under the jurisdiction of federal securities law. The SEC's statement revealed investigations had found the tokens issued related to the Ethereum DAO constituted securities.
“the Commission deems it appropriate and in the public interest to issue this Report in order to stress that the U.S. federal securities law may apply to various activities, including distributed ledger technology, depending on the particular facts and circumstances, without regard to the form of the organization or technology used to effectuate a particular offer or sale.”
While the agency promised not to pursue charges relating to the DAO incidence, it cautioned market participants and the distributed ledger industry via an investor bulletin.
Following the announcement, ICO issuers explicitly steered clear of offering tokens to US investors. At the time, other countries were deemed more favorable to this new funding model.
August 24, 2017: Canadian Securities Administration
Canada's Securities Administrators issued a staff notice on August 24th titled "CryptoCurrency Offerings" that listed requirements for digital tokens falling under securities. The implications of classification as securities extends to exchanges that list ICO tokens for trading.
“With the offerings that we have reviewed to date, we have in many instances found that the coins/tokens in question constitute securities under securities laws, including because they are investment contracts.”
Interestingly, while the notice cautioned issuers of ICO tokens, it offered guidance for firms looking to set up cryptocurrency investment funds. The CSA added it would set up a regulatory sandbox to test new financial product innovations saying:
“We welcome digital innovation, and we recognize that new fintech businesses may not fit neatly into the existing securities law framework.”
September 4, 2017: Joint Statement by Chinese Regulators led by PBOC
On September 4th, China sparked a sell-off in cryptocurrency markets after its all-out ban on ICOs. A joint statement by seven government agencies led by the People's Bank of China termed ICOs as "illegal" and "disruptive to economic and financial stability." The warning fell within the laws of China touching upon Commercial banking and securities law, telecommunications law, financing and financial activities law and laws of the People's Bank of China.
Chinese officials said they would collaborate with law enforcement and the justice department to investigate and punish individual and corporate offenders.
Following the statement, all exchange activity supporting the trade of ICO tokens in the mainland were halted. A sweeping wave of delistings of tokens from exchanges followed, resulting in a 39% decline in cryptocurrency market. Some token sales such as NEO were forced to make refunds to initial investors.
September 5, 2017: Hong Kong Securities and Futures Commission
On September 5, a day after China's clampdown on ICOs, Hong Kong financial regulators released a statement on ICOs. Julia Leung, on behalf of the Securities and Futures Commission (SFC), expressed concerns about the growing use of ICO as a fundraising mechanism in Hong Kong.
“Parties engaging in the secondary trading of such tokens (e.g., on cryptocurrency exchanges) may also be subject to the SFC's licensing and conduct requirements.”
Even though Hong Kong is a special administrative region of China, regulators took a gentler approach to ICOs in general. The SFC’s interest is purely on digital assets and tokens with structures that fall under Hong Kong Securities laws.
September 14, 2017: Thailand Securities and Exchange Commission
Thailand's Capital Market's regulator seemed more welcoming of ICOs. On September 14, Thailand's Securities and Exchange Commission admitted it had been keeping track of this new cryptocurrency fueled fundraising scheme.
The official statement on the regulator's website read
“The SEC Thailand encourages access to funding for businesses, including high potential tech startups, and realizes the potential of ICO in answering startups' funding needs.”
The regulator tempered its pro-ICO stance by warning some ICOs were fraudulent schemes and urged investors to exercise due diligence before involvement. The TSEC also added ICOs that met the threshold of security offerings would be subject to regulatory requirements.
Overall, Thailand's position on ICOs was a breath of fresh air after a month of hostile remarks.
September 27, 2017: Monetary Authority of Macau
The Monetary Authority of Macau issued a statement on 27th September forbidding the country's financial institutions from supporting ICO companies. Macau is part of China as a special administrative region. Regulators admitted the prohibition was in line with actions taken by authorities on the mainland.
The timing of the notice by Macau authorities coincided with a $500 million ICO announcement by a blockchain based gambling firm.
Banks and financial institutions in the country have received official letters strictly prohibiting them from opening bank accounts for virtual currency related businesses.
September 29, 2017: South Korea Financial Services Commission
On 29th September, South Korea's financial regulator warned of dire consequences for companies or individuals raising money through virtual currencies. According to Reuters, the financial services commission said:
“Raising funds through ICOs seem to be on the rise globally, and our assessment is that ICOs are increasing in South Korea as well,”
The statement emphasized trading of cryptocurrencies and ICOs required close monitoring and control. The announcement followed a meeting with the Bank of Korea, National Tax Service, and finance ministry. The regulator was not explicit on the penalties that would befall violators of the warning.
These official statements by regulators seem to follow a similar pattern. The trend has just begun, and more countries are expected to follow in reining in the incredible rise of cryptocurrency fundraisers. Any new technology is going to come up against legacy mindsets, and ICOs are no different. Over time, ICOs and regulators will co-exist and find a way to make it work.
Stay up to date with market trends and exclusive crypto news!
NewsInterview