Chinese regulators crack down on ICO risks
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As initial coin offerings (ICOs) — a form of fundraising in which digital tokens are sold by companies to raise funds — rapidly become more popular, regulators have been growing increasingly concerned about a lack of public understanding around the risks associated with such investments.
Now, it has emerged that the People's Bank of China (PBOC), the country's central bank and regulator, hosted a meeting on August 18 to discuss imposing restrictions, or even a ban, on ICOs to protect investors and mitigate systemic risk. The China Securities Regulatory Commission (CSRC) and other regulators also reportedly attended the meeting.
To begin with, the regulators will consider imposing restrictions on ICOs to mitigate investor risk. The PBOC and CSRC discussed imposing limits on the volume of funding that can be raised in a single ICO, boosting information disclosure standards for companies conducting ICOs, and mandating companies engaged in ICOs issue investment risk alerts to potential investors, according to local media including Tencent Finance and Caixin. Moreover, if the regulators determine these token sales still pose significant risk to financial markets and investors over time, they will consider banning all ICOs in China, the reports add. This comes at a time when ICOs are booming in China, with $395 million raised from over 105,000 investors since the start of 2017, Reuters reports.
These deliberations are the latest indicator that regulators are developing a range of strategies to curb ICO-related risks. Just last week, the US Securities and Exchange Commission (SEC) imposed a trading ban on yet another company engaged in ICOs, and on Monday, it issued an alert warning potential ICO investors to look out for suspicious indicators. All of this activity indicates that regulators worldwide are aware that demand for ICOs is unlikely to wane, and they have to take action to shield the average investor from any outfall in this nascent investment space. In China's case, the solution may be to impose a blanket ban, while the US has opted to let adequately regulated token sales go ahead — it remains to be seen which strategy will become more popular with regulators elsewhere.
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