The Challenge of Regulating ICOs

Aashish Sharma
Sep 27, 2018 · 4 min read

There was more than $8.8 billion invested in the initial coin offers since the beginning of 2016. Various companies are looking for ways to invest in the blockchain technology. They are planning to use the technology for fundraising because the Telegram’s $1.7 billion success clearly shows that ICOs can be used to raise a huge amount of money. It is challenging the initial path of public offers. However, in order to manage this success of ICO, it is important to introduce some rules and regulations. Here we have regulations introduced in Malta.

Malta Digital Innovation Authority Bill

It is clear that soon new authority will be created in Malta that will manage the certification of cryptocurrencies and blockchain platform according to the functioning of regulation of ICOs in Malta. According to the Digital Innovation Authority Bill of Malta, the regulatory authority will work as watchdog and regulator over ICOs. It will also work as a consultative body and the experts will help in the promotion of policies issued by the government in order to protect the reputation of jurisdiction.

It would be the duty of the board to register and certify all the technology service providers in the area according to the TAS bill. It will work as the National Competent Authority of Malta.

Inspectors will be appointed to impose all the penalties including the single public statements as well as there are other powers that will be given to the authorities.

Existing securities law

The principal question from an administrative point of view in an ICO is: what does a token speak to? Contingent upon the attributes of the tokens as well as how they can be utilized, there is potential for them to qualify as managed speculations, e.g. shares, units in an aggregate speculation plan or reserve, e-cash, stores, prospects or debentures. This rundown of potential instruments is wide in light of the fact that the lawful categorization of a coin will rely upon its exact privileges and utilize case — and there is a high level of assortment here.

To the degree the tokens qualify as controlled speculations, the exercises of backers and different gatherings engaged with promoting, exhorting on, managing in and additionally dealing with the ICO could trigger administrative authorizing and advertising necessities.

Comparable administrative and legitimate inquiries emerge in many purviews — this is a long way from being just a UK or EU matter.

Indeed, even where the ICO isn’t directed in the purview where the raising money is occurring, backers and different members need to think about the legitimateness of promoting the ICO in every potential purchaser’s region.

The Virtual Financial Assets Act (VFA)

According to the recent definition shared by the law, it is important to classify cryptocurrency as the Virtual Financial Assets Act (VFA). There is a set of rules and regulations shared by the authorities that will protect the consumers as well as support the growth of blockchain industry and stakeholders. As well as there will be some strict requirements for those who are launching the cryptocurrency in the industry. There are other service providers that will be included in the act as well. Some of them are.

1. Portfolio manager

2. Brokerage

3. Custodian

4. Nominee service providers

5. Investment advisors

6. eWallet providers

it seems like the authorities are taking actions to assure that the blockchain and cryptocurrency will be trusted and used in Malta. They are working on applying all the rules and regulations to assure that everything will be managed authentically and consumers will not have to deal with any kind of threats when it comes to management of information and assets of the digital currency. The Virtual Financial Assets Act will make it easier for the authorities to manage all the services properly under the law.

Malta Financial Services Authority (MFSA)

The MFSA has likewise built up a money-related instrument test that will decide if an item or administration would fall under monetary administrations enactment, or whether it is secured by the extent of the VFA Act. In spite of not yet being made authority, the MFSA has emphasized the way that any guarantors in Malta must do a lawful evaluation and inform the Authority as needs be should any authority be required.

Any substance that offers a VFA or is named a VFA specialist co-op is required under the new standards to apply for a permit from the MFSA through the direction of an enlisted VFA operator. An endless supply of a VFA permit, these administrators will be permitted to encourage the trading of virtual money related resources, for example, tokens or coins, or give administrations supporting the VFA area.