An ICO issues crypto currencies like bitcoin or tokens to raise funds for a start-up company, and regulatory warnings that investors could lose their shirts may be falling on deaf ears.
Steven Maijoor, chair of the European Securities and Markets Authority (ESMA), said he was examining how ICOs fit into existing regulation and how they affect competition in the wider capital raising sector.
ESMA and national regulators in the EU are assessing which ICOs come under existing securities rules on “case-by-case” basis.
“Some of these ICOs are like a financial instrument. Once it is a financial instrument it comes under a whole regulatory framework,” Maijoor told the European Parliament’s economic affairs committee.
“The subsequent question is what do we do with those ICOs that are outside the regulatory world. We will assess that as a board. We expect to report by the end of the year.”
ICOs, so far, have had “difficulty” showing their viability and what extra benefits they bring compared with traditional capital raising, Maijoor said.
In the United States, the Securities and Exchange Commission Chair Jay Clayton said in February he believed most of the sales of new tokens should be considered securities, but it has not classed which coins are securities.
So far, EU regulators have limited themselves to issuing warnings to retail investors about crypto assets, but this may not be enough.
Andrea Enria, chair of the European Banking Authority, told lawmakers he had been minded to let innovation like ICOs develop without a set of specific EU rules.
“This is not working as expected,” Enria said.
Market developments and initiatives by national regulators in what is meant to be a single EU market mean that more regulation at the European level could be warranted, Enria said.
“Consumer warnings don’t seem to be sufficiently effective in raising awareness among consumers that there is a lack of safety net for these investments,” Enria said.
A report for EU finance ministers last month said the EU should adopt common rules on cryptocurrencies and scrutinize how digital units are distributed.