Let’s first understand what an ICO is.
An ICO is an initial coin offering used to fund the development of new cryptocurrency projects. It involves people contributing in a new cryptocurrency or crypto-tokens in exchange for major cryptocurrencies like Bitcoin or Ethereum and Fiat. These crypto-tokens can then be sold and traded against different currencies on an exchange platform if there is a demand for them.
One of the most successful and prominent ICO has been the Ethereum ICO, which had a growth of whopping 152,500 percent. If the idea is good, some serious money can be raised through the ICO’s. That is why Entrepreneurs and startups are looking into how they can get involved in this new fundraising phenomenon.
The very first ICOs emerged as a perfect opportunity making contributors rich in a very short time, but as the number of ICOs grew at such a fast pace, so did the count of suspicious and fraudulent projects that duped the contributors. There have been many scams related to ICOs where photos of renowned advisors disappeared suddenly from official websites, feedback was deleted from ICO community forums, and investors saw a 404 error when they tried to access the ICO domain on browser. This was possible because there were no rules defined for the market players, they could run their business using any scheme or model, and gain maximum returns for themselves. This turned ICOs as a risky option especially if they are not backed by solid documentation and real people, and so it must adhere to certain rules and regulations to protect the interest of the people.
Today, when it comes to ICOs, regulation is an important aspect. Companies and investors dealing with ICOs must understand the regulatory requirements. For example, Adherence of Anti Money-Laundering(AML) and Know Your Customer (KYC) policy is mandatory for every ICO to follow, in addition to other regulations that may vary from country to country.
Some countries, like China and South Korea, have completely banned ICOs, declaring them as potentially fraudulent, while other countries like Switzerland and Singapore are more open to the idea requiring suitable compliance. The most ICO-friendly countries includes Estonia, Cayman Islands, Gibraltar, Malta, Lithuania, Luxembourg, Switzerland, and Singapore.
Let’s take a look at ICO regulations in some of the countries :
The United States: ICO regulations vary from state to state, hence leading to divergence of opinions. BItcoins and major altcoins are treated as a commodity, making them a responsibility of CFTC (Commodity Futures Trading Commission). Future tokens are classified as securities and fall under the jurisdiction of SEC’s (Securities and Trading Commission). If the ICO is to sell or trade securities, it must be registered with the SEC. Celebrity endorsements of ICO is illegal until all compensation involved is disclosed. Also, failure to adhere to AML/KYC policy by the ICO is illegal and can lead to seizure.
The United Kingdom: UK is ICO friendly, and like most other nations, has limited its regulations to just investor warnings on the unregulated nature of ICOs.Currently, ICO operators are free to interpret existing laws and regulations as they see fit for their own properties.
European Union: EU required AML/KYC policies to be followed till November 2017, after which the European Securities and Market Authority took a stricter stance on ICOs requiring ICO firms to follow relevant regulatory requirements.
China: China has taken a strict stance against ICO ’s, banning them entirely from September 2017, due to concerns like money-laundering, terrorist financing and illegal fundraising practices. Financial institutions are also forbidden from participating in the ICO’s.
South Korea: From being one of the world’s prime hubs for cryptocurrencies, South Korea has banned ICOs altogether, taking a similar stance like China.
Switzerland: One of the most ICO friendly nation, Switzerland is the best place for both cryptocurrency businesses and crypto-enthusiasts. Switzerland is planning to work out a set of regulations that will ensure the reliability and financial safety of ICOs.
As is evident, ICO regulations around the world is diverse and ever-changing. The stances vary from open resistance of cryptocurrencies to no interference. Even countries that allow and support altcoins have taken a zero tolerance against malicious and fraudulent ICOs. It is the responsibility of the contributor to do extensive research and keep an eye on regulatory trends before participating in an ICO.
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