US and EU ICO regulations must be aligned to avoid ‘race to the bottom’

Researchers have claimed that a “harmonised application of securities laws” will prevent a possible “race to the bottom” for regulatory bodies concerning ICOs.

The report, from the Technical University of Munich, describes the current legal situation surrounding ICOs as too ‘vague’ in territories such as Asia and Europe and, if laws around the “ICO bonanza” are not properly defined it could lead to shoddy, disparate regulation.

The paper reads: “Initial Coin Offerings (ICOs) are currently the hottest topic in the financial markets. They typically use blockchain technology to offer so-called ‘tokens’ that can confer various rights. Experts estimate that the amount of money raised via ICOs will reach US $20 billion by the end of 2018.

“Commentators have described the ICO bonanza as a new gold rush. Nevertheless, the legal framework for ICOs remains unclear because traditional securities regulation is designed for classical securities that are traded on a stock exchange.”

For the purposes of the report investment tokens are deemed ‘trasferable securities’, and researchers conclude that the differences between definitions of security laws in various markets is a major obstacle in front of any resolution to the problem.

However, despite differences in some areas, the EU and US legal frameworks also have many similarities that would potentially allow them to align their approaches to ICOs.

“Despite resting on a highly dissimilar definition, the financial markets law of the European Union, if applied correctly, applies to token classifications – this is comparable with the US Securities and Exchange Commission’s approach,” the report continues. “The result would be a similar framework in two of the most vibrant regions for ICOs.

“It would be a first step towards a harmonized application of securities laws to ICOs, avoiding regulatory patchwork and a possible ‘race to the bottom’.”