One of the areas of most concern to ICO investors is the current regulatory environment. Here, Bitcoin Market Journal takes a look at the status of ICO regulation globally. (Be sure to bookmark this page, as our team of researchers regularly updates the status of ICO regulations!)
|European Union||Allowed/Subject to future regulations||ICOs are allowed, given they are in adherence to Anti-Money Laundering/Know Your Customer (AML/KYC) policies and to required business regulations and licenses, per the ICO’s business function. On November 13, 2017, the European Securities and Market Authority took a stricter stance on ICOs, however, declaring that an ICO represents a high risk to investors and requiring firms dealing with ICOs to meet relevant regulatory requirements. This suggests that the EU is ready to embrace America’s position on ICOs, which is a reversal of the Union’s previous position.|
|Canada||Allowed/See Notes||The Canadian Securities Administrators have ruled that ICOs and altcoins are securities, subject to regulations on a case-by-case basis. The Canadian authorities have developed a “regulatory sandbox” for the purpose of regulating fintech projects that would not normally fit in the national regulatory scheme, such as ICOs.
Altcoins are recognized as intangible assets and it is expected that commercial altcoin dealers will need to be registered and regulated as money service businesses in the near future. There is a temporary banking ban on altcoin purchases in place by several of Canada’s largest banks.
|China||Banned||ICOs are banned for all businesses and individuals by order of the People’s Bank of China. Chinese ICOs that have completed their funding cycles have been requested to refund any altcoins raised. The PBoC has indicated it will investigate any company or individual found to be in violation of its ruling. The trading of altcoins is also being targeted. Officially, individuals are still allowed to hold altcoins.|
|Estonia||Allowed||Estonia is currently considering starting its own ICO to raise funds. However, the Eurozone rule on nation states not having their own currencies continues to split opinions about the possibility of this happening.|
|Germany||Allowed||Germany has no specific regulations for ICOs but expects ICOs to adhere to existing regulations, including those encapsulated in the Banking Act, Investment Act, Securities Trading Act, Payment Services Supervision Act, and Prospectus Acts.
However, the Federal Financial Supervisory Authority has issued a warning regarding the risks of ICO investments. Per the statement, ” Due to the lack of legal requirements and transparency rules, the consumer is left on their own when it comes to verifying the identity, reputability and credit standing of the token provider and understanding and assessing the investment on offer. It can also not be guaranteed that personal data will be protected in accordance with German standards.”
|Israel||Allowed||Altcoins are treated to a 25 percent capital gains tax. Miners and altcoin traders must pay both corporate income tax and a 17 percent value-added tax (VAT).|
|United Arab Emirates||Allowed, but subject to future regulations|
|Jordan||Allowed, but heavily regulated||Banks and financial institutions are banned from altcoin use.|
|Iran||Allowed, but subject to future regulations|
|Japan||Allowed, but subject to future regulations||The Financial Services Agency is looking at regulations that may help to strengthen AML/KYC protections for altcoins.
There is open fear that a potential crackdown on altcoins may be on the horizon, with the Financial Services Agency following international trends by issuing an investor warning on ICOs.
|Russia||Allowed, but heavily regulated||The Kremlin issued five orders in October, requiring altcoin miner registration and taxation, the application of securities laws to ICOs, and the use of altcoins to create a “single payment space” in the Eurasian Economic Union to oppose the Eurozone.
The position since then has shifted to altcoin use being “probably illegal.” However, there has been no shift in official policy.
|Singapore||Allowed, but heavily regulated||In November, the Monetary Authority of Singapore offered a guide on Digital Token Offerings, which indicated how altcoins should be treated under current securities laws. The new guidance dictates that any ICOs or altcoins that are “capital market products” under the Securities and Futures Act can be regulated under the MAS. This includes altcoins that either infer an ownership interest of a corporation or product, debt, or a share in an investment scheme.|
|Kyrgyzstan||Legal||Domestic use of altcoins as a currency is prohibited.|
|Switzerland||Allowed, but subject to future regulations||Recent attempts to regulate ICOs have failed, but the need to codify protections may reignite the regulation efforts. The Swiss Financial Market Supervisory Authority (FANMA) has started to examine ICOs for possible breaches of securities laws, which may be the first signs of a new wave of campaigning for regulatory oversight. Regulations are not thought, however, to be able to stop the current momentum to incorporate ICOs into Swiss culture.|
|Finland||Allowed||Altcoins are private contracts subject to taxation.|
|Norway||Allowed||Altcoins are a taxable asset, subject to wealth tax.|
|Sweden||Allowed, but subject to future regulations||Altcoins are not subject to a value-added tax (VAT) but are otherwise a currency subject to the Swedish Financial Supervisory Authority. This decision is currently under appeal.|
|Bosnia and Herzegovina||Allowed|
|Macedonia||Banned||Use of altcoins as payment in Macedonia may incur imprisonment, instead of the customary fines.|
|France||Allowed, but heavily regulated|
|Luxembourg||Allowed, but heavily regulated||Luxembourg supports a New York-style BitLicense for altcoin businesses.|
|Iceland||Allowed||On March 12, 2017, altcoins were exempted from the Foreign Exchange Act, which previously led to their banning in Iceland.|
|Lithuania||Allowed||The Bank of Lithuania’s position is that altcoins are lawful, but should be avoided.|
|United Kingdom||Allowed, but subject to future regulations||Like most other nations, the UK has issued an investor warning on the unregulated nature of ICOs. The Financial Conduct Authority argues that even if the ICO is acting in good faith, investors still stand a good chance of losing their entire investment. “Typically ICO projects are in a very early stage of development and their business models are experimental,” the FCA said.
The UK recognizes altcoins as “private currency,” similar to “Disney Dollars” at Disney properties. Currently, ICO operators are free to interpret existing laws and regulations as they see fit for their own properties. However, the UK is testing out ICOs and altcoins in its “regulatory sandbox”; new regulations may be released soon.
There is currently a ban of altcoin purchasing by several of the nation’s banks.
|The United States||Allowed, but heavily regulated||ICO rules vary widely from state to state, from no regulations at all in some states to regulations requiring deposits in equal to or in excess of all local transactions to regulations requiring a license for businesses to engage in altcoin activities. On the federal level, there are no current regulations banning ICOs specifically, although ICOs are expected to be registered and licensed the same as if they were not ICOs. This includes registering with the SEC if the ICO is to sell or trade securities. The SEC has recently found that some altcoins may be securities, and as such, may be subject to the SEC’s ruling in the future. Some SEC commissioners hold the position that most ICOs are securities and should be treated as such. ICOs are expected to adhere to AML/KYC practices. Failure to adhere to these practices may leave an ICO open to legal action or possible seizure.
The United States has also moved to recognize celebrity endorsements of ICOs to be illegal unless all compensation involved is disclosed.
There is a ban on altcoin purchases by several of the nation’s credit card processors and major banks.
|Mexico||Allowed, but regulated||Altcoins are recognized to be virtual assets governed by the nation’s FinTech Law.|
|Jamaica||Allowed||Jamaica has publicly announced its support of altcoin as a potential growth opportunity.|
|Trinidad and Tobago||Allowed|
|Nicaragua||Allowed||The country has taken no official position on altcoin use.|
|Costa Rica||Allowed||Altcoins have been announced to not have the government’s backing, but to also not be illegal.|
|Argentina||Allowed||Altcoins are recognized as money, but not as legal tender.|
|Ecuador||Banned||Altcoins are currently banned in Ecuador. This is because Ecuador is developing a national altcoin that would hopefully take the nation off of dependency on the American dollar.|
|Gibraltar (UK)||Allowed, but subject to future regulations||Regulators are planning to offer regulations for ICOs by January 2019 in hopes of permanently codifying legal protections for the altcoins.|
|Isle of Man(UK)||Allowed, but subject to future regulations||The Isle of Man has indicated that it is seeking to forge regulations in the future that will establish and protect ICOs’ legal status.|
|South Korea||Allowed||There is no explicit ban of altcoins currently on the books in South Korea, although the government has embraced a “zero-tolerance” attitude for malicious ICOs. Altcoin futures and derivatives trading are banned.|
|Taiwan||Allowed||The Taiwanese Central Bank has warned its banks against the use of altcoins, and altcoin ATMs are banned. Despite this, altcoin purchases are allowed by three of the country’s four major convenience store chains.|
|Thailand||Allowed, but heavily regulated||Financial institutions in Thailand are prohibited from investing or trading in altcoins, exchanging altcoins for fiat currency or for other altcoins or commodities, from creating a platform for altcoin trading, from allowing altcoin purchasing via issued credit cards, and from advising about altcoin investing or trading. Despite this, the attitude of the Thai government is to not ban altcoin trading.|
|Malaysia||Allowed, but subject to future regulations||A decision on if altcoins will be banned was due at the end of 2017.|
|Cambodia||Allowed||Altcoin use is discouraged.|
|Vietnam||Allowed/See note||It is prohibited to use altcoins as money in Vietnam, but there are no laws prohibiting altcoin trading.|
|Indonesia||Allowed/See note||Altcoins are allowed to be used as a commodity. However, it is illegal to use altcoins as money.|
|India||Allowed, but heavily regulated||Altcoin use is heavily discouraged by the Indian government. The Reserve Bank of India has banned altcoin use in the banking system.|
|Pakistan||Banned||In direct response to India ’s position, the State Bank of Pakistan banned altcoins to all organizations and institutions. However, the ban will not be enforced judicially.|
|Hong Kong (China)||Allowed, but subject to future regulations||Regulators have indicated that certain altcoins might be securities and should be treated as such.|
|Philippines||Allowed, but subject to future regulations||Regulators have recognized bitcoin as a valid form of remittance payment. However, the country also feels that regulations addressing AML/KYC protections may also be needed. Additionally, companies offering exchange services are now required to register.|
|Algeria||Banned||Algeria banned the use of virtual currencies on December 28, 2017. Per Algerian Law, “The purchase, sale, use, and holding of so-called virtual currency is prohibited. Virtual currency is that used by internet users via the web. It is characterized by the absence of physical support such as coins, notes, payments by cheque or credit card. Any breach of this provision is punishable in accordance with the laws and regulations in force.”|
|Morocco||Banned||Bitcoin has been introduced to the country as a payment conduit. In November 2017, the government warned that the use of altcoins violates exchange rules for the Office des Changes and that the use of such devices could be used for illicit purposes.|
|Nigeria||Allowed||Algeria banned the use of virtual currencies on December 28, 2017. The Central Bank of Nigeria has come out to correct the perception that it banned altcoins in the country. The Central Bank’s position is that – as it cannot regulate the Internet – it cannot regulate altcoin use.|
|South Africa||Allowed||South Africa recognizes altcoins as intangible assets.|
|Namibia||Allowed||The position of the Bank of Nambia is that altcoin exchanges are forbidden and that altcoin cannot be used as payment. This, however, does not have the force of law.|
|Zimbabwe||Allowed||The Zimbabwe government has taken no official position on altcoin, despite showing skepticism. Altcoins are currently being traded in the country.|
|Australia||Allowed/Regulated||One of the first countries to formally launch ICO regulations, Australia requires ICOs that involve combined investment to adhere to the Corporations Act, to keep track of those shares, if the ICO issues shares, and to issue a disclosure document and acquire a financial services license if the ICO offers financial advice to customers.
However, Australia has issued draft laws that would allow the establishment of a regulatory sandbox for FinTech startups that would allow them to operate without being fully licensed.
What Does It All Mean?
As is evident from the chart above, the world’s attitude toward ICOs is ever-shifting. Be it the continuing international crackdown on malicious or fraudulent ICOs, a nationalistic cornering of the local altcoin market, or recognition of the inherent risk in the turbulent ICO space, most nations and major financial institutions have taken a stance on ICOs and altcoins. These stances range from an official recognition of no interference – as in the case of Ireland, Hungary, and Poland – to open defiance of digital currencies.
Oddly, however, there has been an embracing of distributed ledgers, the technology behind altcoins, even if much of the world has strong reservations about its public proof-of-concept. Many of the nations that have the strongest stance against altcoins are the most optimistic about integrating blockchain into their existing protocols.
A Gathering Push toward Codifying ICO Status
One of the problems that many of the countries have with ICOs is that, technically, it is a regulatory workaround. The idea behind ICOs is that instead of seeking an initial public offering, businesses can seek low amount seed funding without the due diligence, regulatory requirements, time, or fiduciary permissions a traditional IPO would require. For a small business dealing with untested or unknown technologies, this peer-based alternative offers funding opportunities to businesses otherwise ineligible to traditional funding schemes.
This approach, however, can be rife with fraud. China claims that the possibility of scammers using ICOs to defraud investors is the primary reason the nation moved to ban the creation or selling of them in their country. Meanwhile, the U.S. SEC has issued an alert indicating that public companies may be engaging in “pump-and-dump” schemes to manipulate their market prices.
Even countries that support altcoins have taken a “zero-tolerance” position to fraudulent or malicious ICOs – particularly if they originate from outside of the nation. Australia, for example, has introduced new regulations that would allow the questioning and prosecution of malicious ICO operators, while South Korea, which recently relaxed its ban on ICOs, has committed to punishing all “bad actors” in the ICO sphere that prey on South Korea’s citizenry.
Many nations are pursuing changes to their regulatory policies to codify adherence to anti-money laundering/know your customer (AML/KYC) practices into law for ICOs and require additional oversight, such as registrations and disclosure statements.
Additionally, if the ICO relates to property transfers or to fiat currencies, these ICOs, in fact, may be dealing with securities. This has implications on taxation and securities integrity. Most nations that have taken definitive action on altcoins have defined the securities implication of altcoin ownership.
The Takeaway for Investors
Taking the temperature of the regulatory environment for ICOs is a wise course for any investor wading into the space. Understanding the ever-changing nature of regulation serves an investor well because keeping an eye on regulatory trends will enable investors to avoid running afoul of the legal requirements that come with investment.
It is the responsibility of the investor to do his or her due diligence before investing in any ICO. While regulations can help to reduce the investment risk, the best risk reduction practice is extensive research and preparation.
The Bitcoin Market Journal can help with that. Our team of investment analysts conducts deep research and analysis of pre-ICOs, ICOs, and altcoins. Join our community of investors today by signing up for the Bitcoin Market Journal newsletter!