A recent draft report from the European Committee on Economic and Monetary Affairs to the European Parliament suggests that ICOs may in the future be covered by European crowdfunding regulations.
More specifically, the rapporteur responsible for the draft report, British Member of the European Parliament (MEP) Ashley Fox, suggests that some ICOs may be included in this new regulatory framework for crowdfunding.
Including ICOs in a general framework for crowdfunding would make sense, as ICOs have quickly grown to become a major force when it comes to funding ventures. In fact, the first quarter of 2018 alone saw a staggering $6.3 billion being raised through ICOs.
Providing a proper regulatory environment for ICOs, therefore, becomes paramount if the funding technique is to survive. Start-ups, especially those relating to cryptocurrencies, have found an effective channel to attract funding through ICOs, which is far easier than traditional IPOs.
The report recognizes this, and goes on to note that ”Initial Coin Offerings (ICOs) offer new and innovative ways of funding”, but also adds that they can ”generate substantial market, fraud and cyber security risks to investors”.
If ICOs were indeed covered under new EU crowdfunding regulations, this would somewhat alleviate the problem with fraudulent ICOs, as the ICOs would be legitimated through the regulatory framework provided.
Nonetheless, not all ICOs would fall under this new piece of European regulation, as the draft report specifically exempts private placements, ICOs that raise more than €8 million, as well as ICOs that do not use a counterparty from the upcoming regulation on crowdfunding.
The report goes on to note that if this piece of new regulation on crowdfunding were to be passed, it would similarly be a good opportunity to provide a proper regulatory foundation for ICOs.
Moreover, the report state that this would allow ICOs to ”prove their legitimacy”, and should ultimately protect consumers and investors from fraudulent activity related to ICOs, through allowing for regulated ICOs.
It should be noted, however, that this proposal does not include regulation specifically designed to cover the entire ICO sector.
The paper notes that ”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”.
Whilst it is currently unclear whether Fox’s proposal will be accepted or not, the notion that smaller ICOs could potentially be regulated is an intriguing one.
Although this might force startups to jump through some regulatory hoops to attract European backers, it could also provide increased protection to consumers and investors.
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Rasmus Pihl is a writer for Toshi Times by day and an avid follower of the blockchain industry by night. Rasmus holds a Bachelor’s Degree in Marketing from the Gothenburg School of Business, Economics, and Law and runs a Swedish marketing consulting firm. Moreover, when he isn’t writing for Toshi Times, traveling, working or changing the world in some other capacity, Rasmus is more than likely caught up in postgraduate studies.