Some say ICO is an excellent funding stream for technical start-ups that simultaneously covers maintenance costs and fosters further development of the cutting-edge projects. Yet hardly every single start-up using ICO for fundraising is pursuing such pure goals. Besides the statistics proves wrong. According to the report published by Satis Group Crypto Research, almost 81% of the total number of ICOs launched since 2017 have turned out to be frauds.
No wonder, regulation authorities of the nations where crypto-related businesses are blossoming finally turn their heads down to public token sales, a unique technique that along with a billion-worth income has caused major capital losses.
Following the lead of Asian financial watchdogs, the European member countries have started to work on regulatory decisions highlighting the dark inner sense of an ICO activity. However, while China and South Korea has started a witch-hunt outlawing token sales and all cryptocurrencies, the European committee of economic and monetary affair takes it easy on ICOs stressing their valuable contribution to business innovation.
A member of the European Parliament representing the UK, Ashley Fox has written a report on proposed legislation, which would regulate crowdfunding operations, as well as explicitly include ICO’s in its ambit. Notably preparations for the draft release has been started last year in response to mandates from other branches of the EU to create regulation incorporating novel fundraising methods.
According to Fox’s note accompanying the legislative language for the proposal, the framework provides an opportunity to regulate token sales in a way that is expressly attempting not to interfere with neither technological innovation nor the raising of capital for crypto projects. He wrote:
“This regulation gives the opportunity to ICOs that want to prove their legitimacy to comply with the requirements of this regulation. Whilst this regulation may not provide the solution for regulating the ICO market, it takes a much-needed step towards imposing standards and protections in place for what is an excellent funding stream for tech start-ups.”
The report mostly suggests that crowdfunding service providers should be allowed to raise capital through their platforms using certain cryptocurrencies as a part of new and innovative approaches to funding, still it does not deny the possibility of scams likely to take place within the ICOs industry.
The proposed regulation appears only to apply to public sales that raise less than 8 million euros, stating:
“…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 8,000,000 [euros] or ICOs that do not use a counterparty do not fall within the scope of those requirements.”
The document emphasizes the need for regulatory guidelines for operating token sale events deemed as unregulated activities open for a greater risk of market fraud. Therefore, Fox believes that once implemented the approved draft is going to deliver an advanced layer of protection available for the entire crypto-community. Although Fox is an author of the original proposal, he agreed that a current version of the document needs a number of changes before being put in motion.