The International Organization of Securities Commissions Board (IOSCO) released an advisory calling for increased vigilance and discretion with regards to initial coin offerings.
Legal Recognition for Initial Coin Offerings
Given that the digital token industry received several billion dollars worth of funding in 2017 alone, scams have begun to pop up quicker than can be acted upon by regulatory authorities around the world.
In the IOSCO board’s statement, members colluded to “clear risks associated with these offerings.” Furthermore, the board added that:
“ICOs are highly speculative investments in which investors are putting their entire invested capital at risk. While some operators are providing legitimate investment opportunities to fund projects or businesses, the increased targeting of ICOs to retail investors through online distribution channels by parties often located outside an investor’s home jurisdiction [raises]investor protection concerns.”
The members of the IOSCO board have vast experience in the matter of securities and investments, especially considering that its members are responsible for the regulation of over 95 percent of the world’s security market.
It is important to note that the IOSCO Board is not the only regulatory body that has published cautionary messages surrounding initial coin offerings. In December 2017, the United States Securities and Exchange Commission (SEC) released a public statement on its website warning the general public against new cryptocurrencies and ICOs. The report addressed both market professionals and investors against possible Ponzi schemes and fraudulent activity.
Around the same time frame, the SEC also introduced a cyber cell to take action against scams in the industry.
On December 11, 2017, the body successfully filed a criminal complaint against an individual named Dominic Lacroix who was responsible for the “PlexCoins” digital token. In July 2017, the SEC ruled that digital tokens were, in fact, securities and would need to comply with all relevant laws laid down by the commission.
Initial coin offerings have proven to be particularly successful over the past few years and have mainly been riding off the success of other, well-established cryptocurrencies such as bitcoin and Ethereum.
Token sales of this sort are often compared to an initial public offering (IPO) commonly observed in a stock market. The key difference between these two is that an IPO is usually limited to high net worth individuals whereas an ICO is specifically targeted and geared towards a large number of general investors to collectively raise a large amount of money.
China was involved in a landmark decision in September 2017 when it motioned to ban all ICOs in the country. The country believes that the substantial risk presented by the market far exceeds the amount of benefit obtained by a select number of businesses in the field.
The United States is not alone in its endeavor to make the initial coin offering and cryptocurrency industry safer though. The IOSCO website itself is home to a long list of cautionary statements issued by regulators from different countries.