The rapid rise of Initial Coin Offerings (ICOs) has been one of the hottest topics for discussion in the past two years in the fintech industry. Despite the emerging challenges and the recent slowdown, the overall volumes are pretty impressive, with about $18.7 billion raised so far in 2018. A debate about having the new type of fundraising regulated at European level has emerged in the past few weeks. Here we will try to take a look at the main points of discussion.
A draft of the new EU crowdfunding regulations was presented last March by the European Commission (EC), with the main goal to create a common EU crowdfunding license, to help crowdfunding platforms scale up in Europe. The new proposed regulations were communicated together with an action plan on FinTech, which we wrote about in this post.
This is just to provide context for what’s now been proposed by Ashley Fox, a UK Member of the European Parliament (MEP), who presented a draft report to the European Parliament’s Committee on Economic and Monetary Affairs, emphasizing that in his opinion the ICOs have to be regulated under the new crowdfunding regulations.
“In order to allow for a competitive Union framework, crowdfunding service providers should be permitted to raise capital through their platforms using certain cryptocurrencies. Initial Coin Offerings (ICOs) offer new and innovative ways of funding but can also generate substantial market, fraud and cyber security risks to investors. Therefore, crowdfunding service providers that wish to offer an ICO through their platform, should comply with specific additional requirements under this Regulation. However, private placements, ICOs raising in excess of EUR 8,000,000 or ICOs that do not use a counterparty do not fall within the scope of those requirements.” stated Ashley Fox.
As reported by Out-Law.com, this means that crowdfunding platforms would need to provide an information sheet for each ICO, containing, for example, the details regarding the identity of the investors, legal status, ownership of the company, the management behind it, the key activities and the main reasons why they are looking to raise funding. All of this has to be supported by the most recent financial statements and disclosure of the risks associated with the project.
It is worth mentioning that with this proposal the crowdfunding platform operators would be considered responsible for any omissions or inaccuracies – making things potentially quite risky for themselves but safer for potential investors.
Just a few days after the proposal was presented, Valdis Dombrovskis, the Vice-President of the EC in charge of the Euro and Social Dialogue, talked about crypto and ICOs at the EU Economic and Financial Affairs Council (ECOFIN) in Vienna, Austria: “We see that crypto-assets are here to stay. Despite the recent turbulence, this market continues to grow. In particular initial coin offerings, or ICOs, we see they have the potential to emerge as a viable form of alternative financing. Already last year, ICOs helped raise over 6 billion dollars in funding and this year this figure will be substantially bigger.”
We will need to wait to see what is going to happen in the months ahead, but it’s evident that the crowdfunding and alternative finance space keeps evolving and it will become even more exciting – all at the advantage of investors looking for interesting investment opportunities and entrepreneurs seeking new ways to raise capital.