FinCEN the bureau of the US Treasury that collects and analyses data to combat illicit transactions wants to introduce legislation that would fundamentally change the shape of the ICO market.
Companies are increasingly looking to ICOs as a way to get off the ground, but the lack of a transparent and standardized system of regulation is making it difficult to ensure that this way of raising funds does not harm the financial system or make it easier to fund illicit activity.
In the USA, this responsibility falls to FinCEN making them a natural enemy (sort of) of the ICO, and their plans to introduce legislation that would treat all token trading platforms as money transmitters show us why.
FinCEN is tasked with facilitating innovation in the financial sector, so they’re not opposed to ICOs per se. It’s their stand on KYC and AML regulations and how they should be applied to the crypto economy that is creating conflict.
Any legislation that aims to safeguard against terrorism, fraud and other illicit activity can’t be wholly unwelcome. These are issues that need addressing in the crypto economy, even if they are often overstated in an attempt to create FUD.
The problem is not the call for regulation, but more specifically, how FinCEN wants to impose these regulations by treating all ICO and token trading platforms as money transmitters.
All ICOs would need to register with the government and obtain a money services business license before a sale could even be made, and this would drastically reduce the number of new projects springing up. Though registration like this would deter most scammers, it would also retard the rate of innovation we have witnessed in recent years, and nobody (including FinSec) wants that.
Are there other options?
A better alternative might be to look at projects that are already way ahead when it comes to tackling the problems that arise with anonymity.
Polymath, who are looking to corner the market for digital securities, have incorporated ‘KYC aware token technology’ which addresses the problem by only allowing authorized investors to participate on their network, and tZero utilize Digital Locate Receipts which register all creations and purchases on the blockchain.
Blockchain technology was envisioned with the complete removal of gatekeepers in mind, but the Bitcoin white paper represents the first attempt at establishing a set of principles for the innovation. Considering this, it’s not surprising that after ten years we’ve learned that the philosophy of blockchain does not work perfectly in practice. Just like Adam Smith’s vision of capitalism envisaged a system that benefitted everyone but didn’t predict the eventual rise of monopolies.
A less dogmatic approach towards regulation could be needed from both crypto-enthusiasts and governments alike because it is unlikely that either side will give in wholly to the other. Polymath and tZero evidence the industry’s ability to self-regulate while allowing authorities to step in to tackle lawbreakers. If this is the case, why can’t a system be established in which all ICOs must ensure adherence to KYC and AML regulations, but outside intervention is limited? We probably won’t eradicate the gatekeepers, and complete anonymity is unlikely if we want to benefit from widespread adoption, but the technology does provide the chance for us to win back some autonomy, and that’s still a leap forward.
Why don’t you let us know what you think about regulation on our Crypto Disrupt Telegram community?
Michael is an English and Creative writing graduate of Liverpool John Moore’s University, a former editor of several magazines, and a crypto-currency enthusiast. He is mostly interested in crypto-legislation and the potential of decentralized technology to change the world.