Many countries started at least to discuss the global phenomenon of ICO mechanism being used by companies for fundraising purposes. There is not a formal and definite regulation yet, but companies and organizations that issue ICOs are being monitored by the competent authorities, and regulators are already taking positions about it. It's important to mention some of those positions.
It is foreseen that in 2018 the 5th Anti Money Laundering Directive will propose measures meant to strengthen the power of EU Financial Intelligence Units and include measures to avoid risks related to the use of virtual currencies - such as money laundering or terrorist financial risks - in the regulation. Therefore, it's foreseen that virtual currencies exchange platforms will be included in the scope of the AML Directive and be obligated to follow the same customer identification requirements that Banks, and other financial institutions must follow. Also, the threshold to identify holders of pre-paid cards will be lowered from 250 euros to 150 euros, so small transfers of money obtained with illegal activities will also be discouraged. Finally, exchange services that allow trading between fiat currencies and digital currencies, and wallets that generate private keys to the users will need to be licensed in the European Union country where they are established to function.
Since September 2017, the authorities in the country decided to ban all cryptocurrencies trading in exchanges around the whole country. The authorities also publicly stated that all organizations are strictly forbidden to launch ICOs and the ones that had previously launched them were obligated to refund the investors that bought tokens. The People's Bank of China released a statement explaining that those measures are meant to protect the legal rights of investors and also prevent financial risks, because the authorities believe this decentralized technology can be used for illicit and illegal purposes, such as fraud or money laundering.
Therefore, according to the statement, no exchange platform can "Be involved in offering exchange services between fiat currency and tokens" or "Buy or sell tokens for cryptocurrencies, or act as a central party facilitating the trading of tokens for cryptocurrencies" (ZHAO, Wolfie). Finally, Chinese authorities blocked the access to all websites that are related to cryptocurrencies or ICO, including international ones.
A cooperation agreement was signed between the Swiss Financial Market Supervisory Authority and the Monetary Authority of Singapore to provide an updated framework for innovative companies in both countries. This agreement aims to support financial services industries to follow the regulations in both Switzerland and Singapore, so companies in one of the countries can provide solutions, services and develop partnerships to companies in the other.
Moreover, according to the lawyers from MME Law Office that participated on the Crypto Valley Forum Meetup, if the token is not connected directly to a share or a debt it won't be considered a security, and thus the company based in Switzerland that issues the token won't need to follow regulations related to securities. However, if the company sells the token internationally it probably should consult the current legal interpretation in other countries where the buyers are. Finally, the lawyers pointed out that the term "token generating events" (TGE) is more adequate to define ICOs, so there is no confusion between those and the well-known IPOs.
In United States, a Uniform Regulation of Virtual Currency Businesses Act was approved and it should be followed by all States when implementing laws in their territories to regulate virtual currencies. According to the Act, virtual currency is defined as something that represents a value digitally and it's exchanged, stored or represented as unit, while it doesn't have legal tender status. Moreover, the Act establishes that anyone who intends to engage in virtual currency business with an USA resident must have a license to conduct this business conceded by the authorities, except if this person is exempt according to the Act. One of the exemption cases, for example, includes a person that only exchange, transfer or store the digital currency to provide services, as long as the transactions are between two parties that are exempt from registration or license.
The US Securities and Exchange Commission also considered that some kinds of tokens are securities and, therefore, should be issued according to the regulation that refers to securities. Finally, to define a token as a security three characteristics have to observed, according to the Supreme Court decision regarding the case of SEC vs Howey: the buyer must invest some amount of money to acquire the tokens, like in a crowd sale; there has to be a common enterprise, which usually happens when the tokens are sold before a code is deployed on the blockchain; finally, the buyers depend on the work of the developers to earn some profit, which is normally the case if the sale happens before the official launch of the network.
It is important to mention that only the fact that the network was not yet launched when the tokens were sold is not enough to define these tokens as securities. However, there is a belief that the time frame between tokens selling and system launching should be as short as possible. Because of that, an organization should seek legal advice before considering the issuance of tokens to fundraise her system.
Similarly as the authorities in the US, the Monetary Authority of Singapore stated that some tokens can be considered securities depending on their underlying basis. If a token gives the owner the right of a share or debt from the company that issued the token in a collective investment, then it falls under the Securities and Futures Act. Therefore, organizations that issue this type of token must follow licensing requirements and submit a prospectus to the central bank before selling it. In case the token doesn't present similar characteristics as securities it will be considered an asset.
Moreover, the Monetary Authority issued a paper called Proposed Activity-based Payments Framework and Establishment of a National Payments Council. The paper recognizes the new models of money transferring and it's meant to create an enabling environment for new FinTech businesses while ensuring customer protection and law enforcement against crimes such as money laundering.
The authority responsible for the financial sector, called Commission de Surveillance du Secteur Financier issued a press release with some guidelines for organizations that intend to issue ICO. According to this press release, the investors should be well informed about the risks and have professional knowledge considering that ICO is a risky investment. Also, the characteristics of the token to be released have to be observed in each different case scenario, because some rules regarding financial instruments and anti-money laundering may be applied. Finally, the Minister of Finance needs to previously authorize an organization that intends to issue tokens. It is important to mention that Luxembourg was the first European Union member to concede a use license to a bitcoin exchange platform to operate.