The UK’s financial watchdog is set to launch a “deeper examination” into Initial Coin Offerings (ICO), in a move that could ramp up regulation against the fundraising tool that has been riding the wave of the Bitcoin boom.
The Financial Conduct Authority issued a warning to consumers in September about the “speculative nature and high risks” around ICOs, which allow investors to exchange cryptocurrencies like Bitcoin for proprietary “coins” or “tokens” linked to a specific firm or project.
They can act like a share in a firm, drawing parallels with an initial public offering (IPO) on a public exchange, a prepayment voucher for future services or in some cases “little to nothing materialises after a token issue”, according to the FCA.
But that has not stopped the “rapid proliferation” of ICOs, which are unregulated, as an alternative way to raise funds over the past 12 months.
“The ICO market is evolving at great speed,” the FCA said.
“We intend to gather further evidence on market developments and to conduct a deeper examination of this fast-paced phenomenon.
“Our findings will help to determine whether or not there is need for regulatory action in this area,” it added.
The financial watchdog says it will continue to work with national and international regulators and hopes to “engage” with tech and financial services firms over the development and use of ICOs.
Coin offerings have become more mainstream thanks to celebrity endorsements from the likes of professional boxer Floyd Mayweather , who was promoting the ICO for Stox this summer, a company touted as a “prediction market platform” that will use the “wisdom of the crowd” to predict and trade the outcome of financial, sporting and political events.
Others have been less keen, with China going so far as to ban ICOs in September in a move that caused the price of Bitcoin to slide.
South Korea has since followed suit.
But the price of Bitcoin has soared to new heights in recent months, hitting record levels on various exchanges including Coindesk which showed the cryptocurrency trading at 17,680 US dollars (£13,250) on Friday afternoon.
ICOs are just one way that companies and investors are trying to take advantage of the cryptocurrency boom.
Chicago’s CBOE exchange launched cryptocurrency futures trading this week, following regulatory approval by US authorities, in a move that advocates say helps legitimise the use of Bitcoin.
The Chicago Mercantile Exchange (CME) set to launch its own Bitcoin futures trading on Monday December 18, while Nasdaq is also considering offering Bitcoin futures in 2018.
The FCA’s plans for an ICO review were announced alongside the release of feedback on a discussion paper on “distributed ledger technology” (DLT)- more commonly known at the the blockchain system that underpins Bitcoin.
Blockchain is being adopted by mainstream banks and financial institutions, and is seen as an opportunity to strip costs, serving as a central ledge to track and verify transactions that cuts out the need for fee-charging middlemen.
The watchdog said on Friday that it will continue to monitor ledger-related market developments and is keeping its rules and guidance “under review in light of those developments”.
“It will work collaboratively with industry, HM Treasury, the Bank of England, the Information Commissioner’s Office and other UK bodies to ensure a coordinated approach towards DLT in the UK,” the FCA said.
“At an international level, the FCA will work closely with national and international regulatory bodies to shape regulatory developments and standards.”