The Financial Conduct Authority (FCA) has just joined the list of regulators giving their opinion on the legality of ICOs. They have released a statement that outlines their thinking of how ICO issuers should consider regulation.
They did, however, mention that if an ICO includes regulated investments then it would fall under the supervision of the agency. They compared the issuance of tokens to the current laws that surround IPOs, private placements and other crowd funding initiatives.
They went on to state that those companies that would like to raise an ICO should carefully consider what their activities entail. Are they dealing or advising on any regulated investments? If this is the case then the promoter needs to take the adequate steps to make sure that they are authorised by the FCA.
Although this announcement is not the most helpful by the FCA, it does show that they are taking a more measured tone when it comes to the new technology. This is in contrast to the Chinese authorities who have recently instituted a blanket ban on all ICO activity.
The FCA did have suggestions for potential investors in ICOs though. They said that the space was unregulated, with little in the way of any investor protections as well as extreme price volatility. They took issue with many white papers that are being released which are either incomplete or misleading. According to the statement
ICOs are very high-risk, speculative investments.
This is a reasonable statement as there have been a number of ICO whitepapers that did not meet muster. There are also a number of fraudulent ICOs that the UK government should pursue as a criminal matter. Yet, when it comes to the licensing of ICOs from a financial regulatory standpoint, there is less certainty.
The SEC, for example, has extended its traditional regulatory requirements to ICOs with an important caveat. They do not treat all investors equally. Investors who are considered high net worth or “sophisticated” can still invest in unregulated ICOs.
Not too many people were happy with the SECs decisions. This is because it allows those investors with more money than others to get tokens at a considerable bargain before they are released to the general public. A good example of this recently was the record breaking Filecoin ICO.
A Smarter Solution
There is no easy way to regulate ICOs with traditional methods. Regulators and issuers alike should consider smart new methods of possibly contracting out due diligence to other bodies with a technical skill set.
If the FCA were to consider a smarter solution that brought together a public-private partnership, this would indeed be a boon for the UK. It would become the first stop for most block chain based start-ups and could give a much needed boost to a post Brexit UK.
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