Thursday, 8 March 2018

Will the EU catch an ICO cold?

One of the big bubbles in the world at the moment is the massive growth of Initial Coin Offerings (ICO's). At its heart this a business of issuing tokens that are pretending to be money. The tokens are promoted and some go up in value and some down. It is a new ear of electronic store/deletion of value.

However this past few months the Icarus phenomenon has struck, even China is thinking about cracking down on this multi-billion dollar industry. Japan this week has said it is considering next steps.

The USA has one a whole lot further, the SEC is now issuing subpoenas and demanding info from the coin offer companies.

The key issue, is that ICO's have thus far managed to sneak around  the huge regulatory barrier of the Finance sector, by only pretending to be money and in reality being software they have skated the old rulings. Of course, to their customers they are a form of money. It's very clever and of course has been exploited at length.

Finally though, now the bubble is very toppy, the regulators are getting their act together. However, noticeable is the EU and also UK, being much slower to act. yes, Mark Carney and the Bank fo England as ever are calling investors 'fools' and such like (none of us have the spectacular BOE pension fund to look forward to though, do we?), but they have not really done anything.

The EU and UK are primarily concerned about money laundering - as always their main fear is they maybe losing tax revenues somewhere. So the focus is on how transactions can be monitored and KYC checks done.

The US and others have a more fundamental approach, that is are many of the currencies even vaguely legitimate or are many of them just complex frauds to hoover up money from retail investors?

Of course, in the short term this may lead London and Frankfurt/Berlin to become crypto-central for a small while which is a decent bump to our growing FinTech industry, but we would have to question the benefits of this. London hardly needs to host yet more ways of either money laundering or ripping off people with financial scams - already it is a world beater at both.


Steven_L said...

But if the coins and tokens are not a "financial service" in the EU, and just 'softeware' (or 'digital content') then they are caught by the Consumer Rights Directive, and are just then shouldn't consumers in the EU get a 14 day cooling off period, extending up to 12 months if said consumers are not informed of it?

There'd have to be a case by case assessment of each ICO / coin / token of course. But on a purposive interpretation of the law surely most of them must be "financial services" and the regulators are asleep again?

Either way, I don't see how they can have it both ways. It's a financial service or it's digital content - and either way it is regulated.

CityUnslicker said...

Sl - Correct, it is very surprising that the EU are so late to the party that China has even twigged most of this first.

Maybe they are distracted? More likely they are being very badly advised by some equally uninformed lawyers or who really have some clients to lobby for...

Anonymous said...

Or the UK government realise the under lying crypto currency cannot be contained and so have decided that ICO are basically gonna continue.
Government inability to grasp IT systems is legendary

andrew said...

What happens when the aggregate value of all these crypto currencies exceed the amount of USD in existance?

Steven_L said...

They still won't realise how dumb they are.