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ACCA supports regulatory approach to initial coin offerings

By Stephanie Wix

While blockchain technology and cryptocurrencies are developing there needs to be a balance between regulation, risk management and innovation, according to The Association of Chartered Certified Accountants (ACCA).

Originally developed to fund blockchain based innovation, Initial Coin Offerings (ICOs) are when investors receive coins/tokens rather than shares. As a result, ICOs are a potential disruptor of the finance function and risk being used for money laundering as they are outside current security regulations, according to the ACCA.

As the cryptocurrency allows businesses to obtain funding more quickly and easily, ICO activity has increased in the last six months of 2017, with funds raised 40 times more than in the previous year, according to the ACCA report ICOs: real deal or token gesture.

“High short-term gains in using ICOs might look appealing to investors, but it’s easy to fall victim to a scam and for the investment to be lost,” ACCA head of business insights Narayanan Vaidyanathan said. “Businesses will need to be mindful of the risks and ethical issues posed by cutting corners in using unregulated alternative funding methods.”

Accountants should guide organisations by keeping up with regulatory announcements in their jurisdictions, as well as training in risk, compliance and governance, Vaidyanathan added.

Regulators have issued warnings of the inherent risks of ICOs, and have adopted various approaches to tackle these risks. For example, South Korea and China have banned ICOs outright and the USA Securities and Exchange Commission (SEC) has identified unacceptable ICOs. Regulators believe that individual investments should be assessed on a case by case basis, and where ICOs are classed as security, the security regulation requirements should be complied with.

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