‘Light touch’ regulations needed for ICOs Congressman says

A US Republican Representative has said the initial coin offering (ICO) market needs “light touch” regulation to provide more certainty.

Warren Davidson, a representative for Ohio state, said the Securities and Exchange Commission (SEC) and other regulatory authorities in the US needed to put together a coherent framework for regulating the market, adding that there was regulatory “arbitrage going on”.

Security, or not?

Davidson, interviewed on CNBC on Thursday said: “You don’t really know when somebody does an ICO, whether they are really launching this great distributed ledger product that is going to be a security or if it looks a little different, like ethereum and bitcoin determined to be essentially commodities.”

Indeed, the SEC firmly believes that established cryptocurrencies, such as bitcoin and ethereum, which were not launched as ICOs to support blockchain development, behave more like commodities. Commodities do not come under the regulatory oversight of the SEC.

SEC maintains some ICOs must be classed as securities but regulatory framework remains unclear: Shutterstock

However, token launches – the equivalent of equity raising on stock markets as initial public offerings (IPOs) – that are promoted to raise cash for blockchain projects, are regarded as securities and should thus be regulated by the SEC.

Lightweight regulatory framework

Such confusions and wariness over the likely path of future regulations have hit prices of cryptocurrencies hard this year, and Davidson won’t be the only one to hope that regulations on ICOs – when they come – will be “light touch”.

He said a lightweight regulatory framework for ICOs would provide more clarity to investors without complicating genuinely beneficial projects with undue red tape, but lack of regulatory clarity made the ICO market more risky to investors.