The European Union plans to put ICOs under regulation, according to a draft proposal by the European Parliament’s Committee on Economic and Monetary Affairs (ECON), published on August 10.
The proposal is part of a much broader EU legislative act, which targets all crowdfunding platforms, and is made by Ashley Fox, a Member of the European Parliament (MEP) representing the UK. He has noted that the proposed EU regulation gives a chance to ICOs to prove their legitimacy as well.
"This Regulation gives the opportunity to ICOs that want to prove their legitimacy to comply with the requirements of this regulation. Whilst this regulation may not provide the solution for regulating the ICO market, it takes a much-needed step towards imposing standards and protections in place for what is an excellent funding stream for tech start-ups," Fox noted.
According to the document, the ICOs create innovative ways of funding, but also carry significant market, fraud and cybersecurity risks to investors. In order to provide protection for the end user, those who are willing to raise funds via ICOs will have to register under the newly developed regulation.
However, in case of private placements, ICOs raising more than €8 million or ICOs not using a counterparty will not be required to register.
This could create a dilemma for small start-ups as they would either have to go through the registration procedures or simply choose to avoid accepting European backers just like many ICOs are now refusing to accept funds by US citizens.
According to Fox, this regulation would be just the first step in more changes that should be undertaken in a long-lasting legislative process. The EU’s current view on cryptocurrencies is that they are not a major threat to the existing financial system and, more importantly, the various digital assets are not classified as securities. However, the latter may change in the coming months.