EU’s Securities Watchdog to Develop Regulations for ICOs

EU’s securities watchdog, ESMA, is endeavouring on the path to developing appropriate regulations for ICOs by way of investigating all Initial Coin Offerings. The present year has witnessed the shutting down of a number of ICOs, like that of Centra Tech and AriseBank. The European Securities and Markets Authority is, in fact, following the lead of the US Securities and Exchange Commission, and thereby tightening restrictions around ICOs.

Steven Maijoor, Chair of ESMA, relayed to the European Parliament’s economic affairs committee that the watchdog is interested in investigating how ICOs are positioned in the existing financial framework along with assessing the implications for the capital raising sector. However, Maijoor added that the above task is quite challenging because every initial coin offering is different from the other, and not all ICOs fall under the umbrella of ‘financial instrument’ category. As per Maijoor, the ICOs that do not fall under the existing regulatory framework are a challenge and the need of the hour is to find a way to regulate them appropriately.  

Differing from Maijoor’s view, his colleague and European Banking Authority’s chair, Andrea Enria, was previously quoted as saying that he is of the view that to prevent stifling innovation the correct path is to allow ICOs to exist without any influence from the European Union. Enria has however changed his stance ever since. After noticing that the outcome is not as he had hoped for, Enria looked back and said ‘warnings issued by the EU to retail investors pertaining to cryptocurrency assets have not proved to be sufficient to raise enough awareness’. Crypto customers have been informed by EU regulators that ‘when it comes to investing in cryptocurrencies there is no safety net’ but this message has been lost among the masses.

The Securities and Exchange Commission’s Chairman, Jay Clayton thinks that the ideal way to combat this information asymmetry is to regulate ICOs in a manner similar to securities, even though he admits that not all ICOs fall into the above category. It is to be seen how the European Securities and Markets Authority will put different types of ICOs under a regulatory framework so as to safeguard the public’s interests.