Japan Moves Towards Adopting ICO-Friendly Regulation

Government-backed research group proposes rules and guidelines to make ICOs a sustainable financing method.

by Coins.Online
05 April • 2.5 min
In Regulation

ICO Business Research Group, a study group backed by the Japanese government, published on Thursday a report, dubbed Call for Rule-making on ICO, proposing a set of guidelines for the establishment of regulations that would make initial coin offerings a sustainable financing method.

“ICO is still in its infancy and has no industry practices yet. Appropriate rules must be set to enable ICO to obtain public trust and to expand as a sound and reliable financing method,” the report reads.

It observes that fundraising by tech startups via the sale of digital tokens has been gaining growing popularity among investors, but notes that inadequate measures for investor protection, as well as tax and accounting issues, are considered problematic across the globe.

To support the further development of the ICO market and help it gain wider public support, the research group proposes rules on the ‘issuance of tokens’ and ‘trading of tokens in the issue market’. It stresses on the need to avoid situations where ICOs are abused as tools for evasion of laws.

The report includes two key guidelines and five major trading principles as a minimum set of recommendations but notes that more detailed rules, as well as accounting and taxation standards, will be required to make ICOs safe for issuers and investors.

According to Bloomberg, the ICO-friendly proposals will be reviewed by Japan’s Financial Services Agency (FSA) later in April, and could eventually turn into law in a few years.

ICOs have been enjoying mounting interest as a way for crowdfunding of promising blockchain projects, implying high investment returns. As much as USD 8.8 billion have been raised through ICOs since the start of last year, according to coinschedule.com.

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ICO Scams

However, ICO scams have flooded the market, prompting social media giants to ban ICO-related ads and governments all around the world to think of tightening control measures. China and South Korea have banned ICOs, while the US regulatory authorities have been investigating a number of suspected fraudulent ICO schemes while deliberating on the need to oblige ICOs to register with the Securities and Exchange Commission (SEC).

A recent survey by advisory company Satis Group suggested that more than 80% of all ICOs were a scam and only 8% of them have managed to go on trading. Another survey, carried out by the North American Securities Administrators Association (NASAA) last month found that securities regulators identified ICOs and cryptocurrencies as the asset with the highest risk of fraud - 94%.

In 2017, Japan became the world’s first country to regulate crypto exchanges, obliging them to register and get an operating license. In 2014, Japanese Mt. Gox, once the world’s biggest crypto exchange, collapsed after a massive hack attack that saw 850 000 bitcoins stolen, with only 200 000 detected later. Earlier this year, Japan’s crypto market suffered another major blow, when hackers stole more than USD 530 million worth of NEM coins from popular crypto exchange Coincheck. Subsequently, FSA initiated inspections of crypto exchanges and ordered seven of them to make security improvements.