The Security and Exchange Commission’s (SEC) increasing role in regulating Initial Coin Offerings (ICOs) will boost investors’ confidence in the new fund-raising method, according to an expert in blockchain.
“Instead of letting individual parties conduct their own ICOs, it is better to have an official process of collecting the relevant information as it will provide more protection for investors,” said Paul Sin, a consulting partner with Deloitte China and Deloitte’s Asia Pacific Blockchain Lab Leader based in Hong Kong.
ICOs are a fundraising method for cryptocurrency companies, similar to initial public offerings (IPOs). However, more often than not, they are not regulated by a central government agency with cryptocurrency companies tending to bypass the rigorous and regulated capital-raising process required of venture capitalists or banks.
The SEC has proposed rules for data submission from digital asset business operators and ICO portals. The proposal aimed to promote a clear understanding and a standardised protocol for monitoring and supervision of digital asset businesses as well as reducing the need for data submission on a case-by-case basis, the regulator said.
Under the SEC proposal, information required by its office are, firstly, transaction data including the volume and proportion of allocated digital tokens, allocation price, trading orders, trading price and volume, transactions related to deposit withdrawal and the transfer of digital assets or money. Secondly, the profile data of customer, company and product profile must also be submitted to the watchdog.
Enforcing regulations on the process of ICOs, however, comes with the risk of discouraging cryptocurrency startups who may move their offerings abroad, said Achari Suppiroj, director of the SEC’s fintech division, in a separate interview with The Nation last year.
“Our challenge is to strike a balance in the regulatory framework for cryptocurrency startups not to be discouraged while investors feel safe investing in ICOs,” she said.
Meanwhile, Sin did not expect the proposed measures would pose a barrier for smaller firms planning an ICOs.
“I do not think the proposed regulations would make it more difficult for them. If there is no regulation, there is no protection for investors, and they will feel skeptical about investing in ICOs,” Sin said, adding that the lack of investor confidence is more of a negative factor than official regulations.
“When firms are checked and regulated, investors will be more confident. That is better for the market,” he said.
“However, there will always be risks in investing in ICOs,” he said. Investors should be well-informed on their target of investment and not solely dependent on government regulations, Sin concluded.