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The European Parliament Committee on Economic and Monetary Affairs has suggested new rules for public Initial Coin Offerings (ICO). This draft report was written by Ashley Fox, Member of the European Parliament representing the UK.
As per the document published on Friday, the new rules would require platforms to create a cap for crowdfunding efforts and follow certain securities laws.
As reported by Coindesk, the crowdfunding regulations initiative has been under discussion since last year with a formal proposal from European Commission coming in March this year.
According to Fox's note accompanying the legislative language for the proposal and the framework provides an opportunity to regulate token sales. "This Regulation gives the opportunity to ICOs that want to prove their legitimacy to comply with the requirements of this regulation. Whilst this regulation may not provide the solution for regulating the ICO market, it takes a much-needed step towards imposing standards and protections in place for what is an excellent funding stream for tech start-ups," he wrote.
The report suggests that crowdfunding service providers should be allowed to raise capital through their platforms using certain cryptocurrencies. This has some advantages like new and innovative funding, while disadvantages include fraud and cybersecurity to investors.
The proposed regulation appears only to apply to public sales that raise less than 8 million euros, stating:
"...crowdfunding service providers that wish to offer an ICO through their platform, should comply with specific additional requirements under this Regulation. However, private placements, ICOs raising in excess of 8,000,000 [euros] or ICOs that do not use a counterparty do not fall within the scope of those requirements."
The document emphasises the need for regulatory guidelines. The present scenario shows that initial coin offerings are operating in an unregulated space. So, the consumers are at a greater risk of market fraud.
However, Fox also believes that while this regulation is an opportunity to provide regulation for initial coin offering there should be a number of changes to improve the proposal.
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