Initial Coin Offerings, ICOs, emerged in Q2 as the dominant funding source – ahead of VCs, according to CoinDesk’s recent State of Blockchain report. Based on the research, ICOs were about 3 times as much as VC funding, $797 million compared to $235 million.
Despite ICOs being the leading funding source, there have been various reactions from regulators around the globe, with many watching this industry closely to protect and warn investors of the risks involved.
The most noticeable reaction on ICOs was from China. On September 4, China banned any fundraising activities through ICOs stating that this practice was an illegal form of fundraising, and it may also involve financial scams. The Chinese government also took further action as it required all ICOs to return the funds raised back to investors, to protect their legal rights and interests.
South Korean regulators were also taking a step to having stricter regulation on ICOs, such as having punishments and penalties for ICO fundraising platforms. They have also created a digital currency task force that includes members from the Bank of Korea, the Financial Supervisory Service (FSS), and the Financial Services Commission (FSC).
The regulators in Israel have also formed a new committee to study the applicability of domestic securities laws on ICOs. The committee will also look into approaches taken by other regulators worldwide, and the enforceability of securities laws.
Many regulators from countries such as Canada, Germany, Hong Kong, Singapore, United Kingdom and the United States of America had the similar view of ICOs having the possibility of being classified as a security or financial instrument, depending on the structure of the ICOs – which would result in the ICO being subjected to the securities law or relevant licensing requirements. Similarly, the Australian Securities and Investments Commission (ASIC) would also look at the structure of the ICO, before choosing the right regulatory approach.
Regulators from Malaysia and Russia have also warned investors of the high risks involved and the exposure to fraud and ICO schemes may be unregulated. India’s regulators have not given any specific statements regarding ICOs and are continuing to focus on the “misuse” of cryptocurrencies in general. Regulators from Poland and Spain has also not given any rules or guidelines specific to ICOs. Despite not having specific guidelines for ICOs, regulators in Japan has regulated cryptocurrencies (defined as “Virtual Currencies”).
ICOs has resulted in different reactions from regulators around the world. Some regulators have stepped in to regulate ICOs, while most are still keeping a close eye in this booming space.