Cole Petersen · 4 hours ago · 2 min read · Insights via Alex Krüger
The European Parliament’s Committee on Economic and Monetary Affairs has called for the creation of strict regulations pertaining to initial coin offerings (ICOs).
Parliament Members Call for Regulations
In a report published Aug. 10, select Members of the European Parliament (MEP) presented their opinions and comments on regulating and legalizing token issuance platforms and businesses present in the EU. The draft was spearheaded by Ashley Fox, an MEP representing the U.K.
While regulations on ICOs have been pursued since 2017, a formal proposal by the European Commision was first made in March under the pretext of a “crowd-funded, peer-to-peer financial system.”
Fox’s proposal takes that idea further and defines ICOs in a proper legal language as well as drafts a framework for regulating token sales, an activity which has gained notoriety following several exit scams and lack of reliable products.
Not only does the proposal provide a solution for the fraud-ridden ICO market, it outlines a framework for deserving ICO platforms and entrepreneurs to prove their legitimacy to the government, all while complying with regionally-accepted regulations, according to Fox.
“While this regulation may not provide the solution for regulating the ICO market, it takes a much-needed step toward imposing standards and protections in place for what is an excellent funding stream for tech start-ups.”
Proposal Breaks Down Token Issuances
Although the proposal hinted toward allowing crypto projects to raise funds using specified cryptocurrencies, it added that projects should be approved to introduce their digital tokens to the public as it represents an “innovative way of funding.”
However, draft makers were quick to point out the implication of this process–including how ICOs can be used as a financial vehicle to facilitate money laundering, fraud and an increased cybersecurity risk for investors.
The proposed regulations are only applicable to projects raising less than €8 million, indicating that additional, stricter rules may be applied to token projects generating funds north of this amount or that they may not fall under the regulatory framework.
According to the report:
“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 more than 8,000,000 [euros] or ICOs that do not use a counterparty do not fall within the scope of those requirements.”
Positive Road Ahead
The report also stated that the crowdfunding limit helps mitigate financial risks for retail investors. Fox, meanwhile, noted that the token issuance market currently operates in a highly-unregulated manner, putting consumers at significant risk from fraudulent activity.
The proposal Fox wrote is not final and binding, however, and additional changes must be incorporated into the document to improve its authority.