Regulatory Issues With ICOs

The sky is pretty much the limit for budding companies who want to launch an initial coin offering or ICOs. As accessible as the blockchain community has made it to receive startup funding, however, it should not be conducted without regard to the regulatory commissions and the rules that they set forth. Each country will have its own regulations, and firms will need to make sure they comply with all the legalities in their nation.

Sometimes, it is thought that because cryptocurrencies operate outside the established banking systems, the government has no interest in them. While that may have been the case at first, it is gradually being accepted that these forms of exchange have to account for somehow.

In the United States, for example, Bitcoin is considered a commodity, and it is taxed as a property. As lately as June of 2018, the U.S. Supreme Court was debating Bitcoin futures, a risk management tool that allows parties to agree to buy or sell their coins at a fixed price at an agreed upon time, regardless of its value at that time.

This means that steps must be taken to ensure proper accounting and reporting protocol, as Bitcoin is also subject to capital gains taxes. Investing in cryptocurrencies, especially on a short-term basis, can produce income that must be reported to authorities for the purpose of taxation.


KYC And AML Requirements

KYC stands, simply, for know your customer. This refers to the identification of your clients and is used in the prevention of money laundering activities. This runs contrary to the mindset of many who utilize cryptocurrencies, as privacy and anonymity are considered to be of the utmost importance, but it cannot be overlooked with regard to the ICOs.

It requires documentation and analysis of clients to make sure they are not high risk. Companies will need to verify the identities of those they are working with by examining their driver’s license, passport, voter’s identity card, or other documents. KYC is part of the Patriot Act that was introduced as a response to the 9/11 attacks in New York, Washington, D.C., and Pennsylvania.

AML stands for anti-money laundering and refers to laws passed in the United States in the 1970s. In short, its aim is to determine what nationality the person is with whom you’re doing business, who they are, where they are from, and where the money they are using is coming from. The problem money launderers in that era were largely, and famously, drug cartels, and while that is still true today, a large concern is the funding of terrorist organizations.


Steps to Take

As a company, it is vital to conduct ICOs in a way that does not bring reproach upon your company’s reputation. You can speak to someone who is an expert in corporate formation, securities and tax law, crowdfunding regulations, data privacy, and KYC and AML laws, and you’ll want advisory support that is aware of the various international codes as well.

It is also vital for the corporation putting forth the ICOs to be transparent so that they can engender trust with its partners. It is not unheard of for people to run scams parading as ICOs that fail to deliver the promised tokens.

Another necessary step will be outlining the company’s history, projected trajectory, and distinguishing features in the market in a document known as a white paper. It will need to include information, such as detailed architectures, value proposition, and a strategy for doing business. The crypto community will want to see that your token is legitimate and that the technology you are proposing will necessitate launching a new currency.

Fidelman & Co. specializes in management consulting, presentation advisory, and financial modeling. We focus on building businesses alongside entrepreneurs and investors. Contact us today for more information about what we can do for you.

Share this post:

Share on facebook
Share on twitter
Share on linkedin

Regulatory Issues With ICOs

Remote Management Consulting

Business Continuity