Make no mistake, the crypto compliance shakeout has started.
An average of $9m a day is being lost through hackers and scam projects and regulators have had enough.
The wall of recent SEC subpoenas and on-going regulator attention will massively increase the focus on ICO projects over the coming year. Projects not able to demonstrate clear compliance and good governance will incur large fines, regulatory sanctions and even jail time for the worst offenders. ICO projects will need to be able to demonstrate that they are following all existing compliance rules (e.g. SEC filings) and new regulations as they are being issued (e.g. in Switzerland).
The history of every new asset class in recent decades (e.g. from derivatives to ETF’s, Securitization and Hedge Funds) has been the same. After a period of spectacular growth, the new investment opportunities eventually get hammered with an avalanche of financial regulation and are forced to put in place proper controls, rules and governance processes.
Going forward, regulators will begin treating ICO projects like any other asset class, imposing similar levels of regulation to protect the public and crypto investors. This sentiment seems to have been echoed by the G20 during its summit this week in Buenos Aires.
There is simultaneously growing pressure from investors for better transparency, compliance, and accountability for their ICO investments. It is extremely challenging for accredited investors and crypto focused funds to complete detailed due diligence on their proposed investments.
A major problem is the lack of a standard governance model for the industry. Currently, there is no independent protocol for managing the end-to-end ICO process and ensuring projects are “fit for purpose”. This is holding back the growth of the industry. Large institutional players will not support the ICO ecosystem until it enjoys the same levels of governance and compliance as traditional forms of investment.
As ICO’s enter their “growing up” phase, there is a role for RegTech solutions to expand into this industry and build out governance platforms that focus on meeting regulatory compliance and provide detailed investor transparency. Robust blockchain integrated solutions are the way to manage this transition and bring regulatory maturity into the ICO space.
A key development should be an ICO Stamp of Attestation – a minimum level of industry governance required for ICO projects, which provides assurance to regulators and investors. This common set of governance protocols is the missing piece in the industry.
The non-profit ICO Governance Foundation[1], for example, has proposed a series of timely protocols and processes to ensure a minimum standard of self-regulation for ICO projects in order to clean up this sector. These should weed out “bad actors and scam projects – and for the first time implement proper enterprise levels of compliance and reporting to regulators and investors alike.
ICO technology platforms could provide the following key benefits to the Token Sale ecosystem:
- Enhanced credibility, streamlined processes and
