SINGAPORE has announced it will begin looking into regulating crypto token sales, or “initial coin offerings” (ICOs), following commitments by the US Securities and Exchange Commission (SEC) to begin regulating the industry, reported Tech Crunch.
ICOs have largely escaped scrutiny prior to last week’s announcement from the SEC, as they don’t fall under the purview of regulators, and thus do not have to undergo the rigorous disclosure process companies who launch IPOs have to fulfil. As a result, ICOs have become increasingly popular, particularly among investors who don’t mind the slightly shady, warranty-less fundraising option. Unlike IPOs, investors won’t be buying direct shares of a company, but will rather receive tokens that give them the right to specific things, such as access to certain projects or entitlements.
Capital raising through blockchain requires compliance with federal securities laws https://t.co/IjOxjoVdfK
— SEC Enforcement (@SEC_Enforcement) July 25, 2017
— Andy Yee (@ahkyee) August 1, 2017
However, that all looks like it’s drawing to a close the SEC beginning projects to study the kinds of regulations ICOs need to protect investors, especially after a hack that hit ICO buyers from “The DAO”, a capital fund. Regulators studying the hack released a report that warned investors “new technologies may be used to perpetrate investment schemes that may not comply with the federal securities laws.”
Singapore – one of Asia’s most important financial hubs – will be following suit, according to the Monetary Authority (MAS) who said it will regulate ICOs classed as securities. This will be a significant change of tune for the Little Red Dot, whose regulators have previously said they don’t consider “this kind of digital token” to be a security, according to a March Wired story.
MAS said they acknowledged ICOs were on the rise and that it required regulation, a decision that will likely impact Singapore’s current status as an ICO haven of sorts. Singapore has attracted some big ICO crowd sales, including a US$80 million round for TenX, and US$15.6 million round for Qtum. According to Tech Crunch, MAS will apparently not regulate all ICOs, only those it deems to be securities, under the country’s Securities and Futures Act (SFA).
“MAS has observed the function of digital tokens has evolved beyond just being a virtual currency,” wrote the authority in a statement.
“For example, digital tokens may represent ownership or a security interest over an issuer’s assets or property. Such tokens may, therefore, be considered an offer of shares or units in a collective investment scheme under the SFA.”
Exactly what will constitute as a security is kind of vague, and up to the regulator, which is bad news for cryptocurrency advocates, especially those who view the currencies’ freedom from institutions as one of the biggest benefits. Furthermore, it’s going to be tough for companies seeking to launch their own offerings, as the lack of definition is going to introduce a level of uncertainty into the whole market.
In these cases, any token offerings will have to undergo the same rigorous disclosure process IPO issuers are subjected to. The arrival of such regulation is going to cost companies tonnes in terms of time, money and effort – IPO disclosure processes are notoriously laborious and it could seriously impede any desire in technology companies to consider raising funds in that way.
However, many crypto-advocates are seeing the emergence of regulatory determination from MAS as a positive sign. Regulation can only mean more individuals and entities outside the initiated will begin paying attention to ICOs as a legitimate fundraising option, thus driving up its adoption.
“MAS has observed the function of digital tokens has evolved beyond just being a virtual currency,” the regulator wrote.