US regulators double down on ICO scrutiny

Posted: 25 January 2018 1:21 pm
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Monitoring the crypto-related activities of broker-dealers, investment advisers and trading platforms.

Two major United States financial regulators have announced that they will be dedicating “significant” resources to monitoring the expanding Initial Coin Offering (ICO) marketplace that spawns cryptocurrencies.

Jay Clayton and J. Christopher Giancarlo, respective heads of the US Securities and Exchange Commission (SEC) and the Commodity and Futures Trading Commission (CFTC) penned an op-ed in the Wall Street Journal this week, outlining their organizations’ obligation to “set and enforce rules that foster innovation while promoting market integrity and confidence”.

The pair revealed that the SEC would “devote a significant portion” of resources to surveying and investigating the unseasoned and controversial coin offering market. An ICO is when a company sells a new cryptocurrency coin to the public for the first time. Mass dispersal is key, however, the vast majority of ICOs don’t get very far.

“Through statements, reports and enforcement actions the SEC has made it clear that federal securities laws apply regardless of whether the offered security – a purposefully broad and flexible term – is labeled a ‘coin’ or ‘utility token’ rather than a stock, bond or investment contract,” Clayton and Giancarlo said.

“The SEC will vigorously pursue those who seek to evade the registration, disclosure and antifraud requirements of our securities laws. In addition, the SEC is monitoring the cryptocurrency-related activities of the market participants it regulates, including broker-dealers, investment advisers and trading platforms.”

The two financial regulators said they would also back resolutions to review company registrations.

“Many of the internet-based cryptocurrency-trading platforms have registered as payment services and are not subject to direct oversight by the SEC or the CFTC. We would support policy efforts to revisit these frameworks and ensure they are effective and efficient for the digital era,” Clayton and Giancarlo said.

Late last week, in a letter to staff, the SEC advised that cryptocurrencies and related products pose “significant investor protection issues” and, for now, cannot be offered as exchange-traded funds (ETFs).

Earlier this month, the SEC sought the withdrawal of two other bitcoin ETF proposals, citing similar concerns. In September, two new security groups, a cyber unit and retail strategy task force, were established by the SEC to combat the growing threat of cyber crime violations and misconduct and better protect retail investors.

Tech giant Kodak and blockchain development company WENN Digital signed a licensing partnership last week to launch an image rights management platform and new virtual currency to support digital photographers.

A number of the world’s central banks, and the governments responsible for them, have called for tighter regulation of cryptocurrencies in order to prevent misuse, deter anonymous trading and boost transparency.

However, some local US governments are getting behind the crypto-craze, investing in bitcoin mining ventures.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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