Worldwide ICO Regulations: What You Need to Know


May 15, 2018

ico regulations

Worldwide ICO Regulations : What You Need to Know Before Launching Initial Coin Offering

Every year thousands of new coins are being minted and will be issued to the system as startups and established companies turn to coin offerings to raise funds for product development or modernization. Very quickly ICOs and cryptocurrency started to draw attention not only from risk-loving investors but also from governments and regulatory bodies, tax authorities, and fraudsters of all kinds and more interest will come in the future with the number of ICOs increasing and governments around the world making.

However, the inherent problem of an ICO lies in the fact that they are decentralized and unregulated unlike traditional investments, and there are no built-in securities mechanisms. It’s all about the trust: the team of innovators announces that they have invented a great solution and investors have to believe them. They are allowed in their white paper to make any claims to support their idea and plans to achieve success, and therefore white paper is the only thing that potential investors have for due diligence is the project’s website, its white paper and the product timeline.

Not surprisingly the authorities found hundreds of loopholes that allow fraudsters to take the money and disappear with them from the investors, especially since tokens purchased during that ICOs are paid with the cryptocurrency rather than fiat money.

ICO regulation by finance authorities in any particular country became not just a governments’ fancy or a way to claim more taxes but an essential requirement of the ICO investors that it would seem necessary. Around the world the regulation takes different shapes depending on the overall stance on cryptocurrencies by a particular government. Since the whole digital currency topic is rather new, laws greatly vary from one jurisdiction to another and sometimes contradicting laws are in place to confuse all involved even more.

As with all innovative technologies there are also countries were quick to accept or reject this new way of fundraising, while others implement changes to the legislation gradually rolling out a regulatory initiative when needed while protecting the interest of investors.

ico worldwide regulations

Countries That Ban ICOs

China is one example of it’s profoundly negative attitude to ICOs and cryptocurrencies in general. The country’s state bank imposes some of the strictest regulations in the industry denying access to ICO to private citizens and businesses, to the effect that it forced ICO who completed their funding goals to have to return the funds to the unlucky investors.

Another significant Asian cryptocurrency stronghold, South Korea, also banned cryptocurrency ICOs but otherwise welcomes the digital cash. The decision was made, according to the regulation authority, to look at security, prevent fraud and trust abuse if it was indicated that trust abuse element may harm investors were present. The country is going forward with welcoming digital cash in all spheres yet ICOs are subject to regulations.

Moving to the North, Russia has been notoriously harsh both towards ICOs as well as cryptocurrencies in general, but only in a bid to regulate and centralize both. The country wants to be the sole proprietor of the market and the only miner of crypto coins. Again, the security reasons are in place and the ICOs must adhere to central bank rulings, especially if it was indicated that ICOs are not raising funds legitimately.

Moving to the other direction, Australia seeks to strengthen cryptocurrency regulation as well as laws subject to the regulation of fundraising and issuing of ICO tokens. Their regulators are very clear that Australians encourage innovation but the law is indeed very strict when it comes to protecting citizens against scams and fraud on ICOs and fundraising. There are plans to strengthen the existing laws.

Countries that Allow ICO

Speaking of ICO welcoming countries, all ICOs are allowed in Gibraltar and Malta. The country regulates the distribution of crypto tokens but makes startups’ life easier by enabling sponsorship of ICOs by local entities to ensure compliance. Malta has plans to have the most crypto-friendly legislation.

In Switzerland money laundering and securities regulation on fundraising and ICOs. Projects which would fall under the Banking Act are exempt. ICOs are allowed in the most cantons especially in Zug where ICOs sprung up everywhere, in every industry nice.

Abu Dhabi regulation on ICOs by the demand of certification of investment seekers from qualified private citizens or businesses. The emirate recognizes the value of cryptocurrencies as it believes it would soon become a valid value exchange method similar to cash.

Flexible Approach

In the US, every state sets its own rules when it comes to ICOs, while in Canada the view of cryptocurrencies including altcoins as a security led to very lax legislation which opens a lot of opportunities, while the regulator also issued a warning to adhere to AML/KYC policies.

Germany, similar to the rest of the EU, expects ICOs to remain within existing laws. A lot of emphases is put on personal data protection and following of AML KYC requirements.

Across La Manche, the UK has a similar approach, as it allows for the operation of ICOs but within strict government-imposed borders set by the Financial Conduct Authority. ICOs are subject to regulation, including rules designed to protect investors. It also plans to introduce new laws after Brexit to increase the number of ICOs.

Japan is probably the biggest ICO supporter worldwide while taking significant steps to control and regulate the fundraising activities. ICOs may fall within the scope of the Payment Services Act. The country which was one of the first to announce Bitcoin a currency takes a surprisingly cautious approach to issuing any warnings to ICO projects as long as they adhered to the legislation.

Similar approach prevails in Taiwan and Malaysia where the government encourages investors to perform the due diligence and weigh the risks before making investment decisions. Hong Kong authorities released a statement that also encourages the investors engaged in ICO activities are required to be licensed. It stated that it expects ICO structures to be subject to Hong Kong regulations that related to securities laws. The effect is expected to appear shortly.