As reported by Reuters, European regulatory authorities are determining how to regulate Initial Coin Offerings (ICOs). A clear regulatory infrastructure should stabilize the market and increase investor and institutional confidence, but the relevant departments are still trying to resolve how to tackle the issue of the legal status of ICO projects.
A case-by-case basis for ICO projects
The problem with the ICO from a regulatory standpoint is that while some can easily be classified as securities, which would put them in a defined regulatory grouping, others do not meet the same criteria. This is because of the flexible nature of the blockchain industry where tokens and networks can have so many varied attributes. Because of this, the only way to proceed is on a case-by-case basis. According to the European Securities and Markets Authority (ESMA) chair Steven Maijoor –
“The subsequent question is what do we do with those ICOs that are outside the regulatory world. We will assess that as a board. We expect to report by the end of the year.”
This seems to imply that, by default, ICOs would fall into the grouping of securities. This is much in line with the current position in the USA, where the Securities and Exchange Commission (SEC) is cracking down on fraudulent ICOs. The ESMA further noted that it intends to compile guidelines for EU institutions who are involved in the ICO industry.
Regulatory wheels moving too slowly for the ICO
It seems that the ICO market is being regulated at last. The news comes a week after the ESMA announced it was spending over EUR 1 Million to monitor blockchain-related activities. Fraudulent actors are being fined and punished in the USA, and legal clarity is finally being established via a mix of case law and tangible regulatory rulings.
However, it may be too little, too late. For all intents and purposes, the ICO boom has passed. Additionally, we are at the start of the blockchain industry, not the end. Authorities will need to move much faster in the future, in an environment involving artificial intelligence, virtual reality, smart cities, and machine-to-machine interaction. People are still waiting for news on the bitcoin ETF, which has been continually delayed. Technology is going to outpace the speed of politicians and regulators to make significant decisions. They will need to be far more proactive if they wish to monitor and control the sector without being left behind for the second time.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.