By The Chairman of ESMA, Steven Maijoor, is of the opinion that some initial coin offerings (ICOs) resemble financial instruments, which for their purposes, would place them within a specific regulatory framework. However, ICOs which do not fall within that framework may need to be regulated and regulators still need to determine how best this can be done. ESMA has stated that they expect to issue a report in this regard by the end of the year.
Rapid Growth in the Cryptocurrency Industry Causing Concerns
The rapid growth in ICOs is globally causing concern, authorities such as ESMA are concerned that investors are not fully aware of the high risks they may be taking in making investments into ICOs, including the possible loss of all of their invested capital. This situation can be compounded by the fact that some ICOs may fall outside of the scope of EU laws and regulations, depending on how they are structured, thus negating any protection offered to investors by such laws and regulations.
ESMA also noted that the prices of such coins or tokens are extremely volatile, stating that investors may not be able to redeem them in the short term.
Firms Involved in IOCs to be Careful Not to Breach Current Regulations
Raising the concern of firms operating outside of the current regulatory framework, ESMA stressed that firms involved in ICOs should be careful of contravening regulated activities and thus breaching current regulations. Where IOCs qualify as being financial instruments, firms need to comply with the relevant legislation.
Where ICOs appear to fall outside of the regulations, such offerings may have to be reviewed on a case-by-case basis. Steven Maijoor noted when addressing the European Parliament economic affairs committee “the subsequent question is what do we do with those ICOs that are outside the regulatory world. We will assess that as a board. We expect to report by the end of the year”.
ESMA Budgeting More Than €1 Million to Monitor Cryptocurrencies
ESMA recently announced that it was budgeting more than €1 million to monitor cryptocurrencies and other fintech activities next year, including activities revolving around financial innovation and crypto assets. It’s stated objective was to “achieve a coordinated approach to the regulation and supervisory treatment of new or innovative financial activities and to provide advice to present to the EU institutions, market participants or consumers”.
The ESMA described the features and purpose of cryptocurrencies to be varied, with some being to provide the purchaser of such coins with a mechanism to obtain access to a product or service that the issue has developed, while others may provide the owner with voting rights or a share in future revenue streams of the issuing institution. The ESMA makes the point that cryptocurrencies may not always be backed by a tangible value, and may be traded or exchanged into a fiat currency at specialized coin exchanges after they have been issued. Cryptocurrencies may also be used to raise funds for a variety of projects in conjunction with blockchain project applications.
Do you believe further regulation of cryptocurrencies is necessary? What do you think ESMA’s ICO rules report will find? Give us your thoughts in the comments below.
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