In its new report - ICOs: real deal or token gesture? ACCA has found that due to the upsurge in the use of Initial Coin Offerings (ICOs) – originally developed for funding blockchain based innovation - regulation and risk need to be at the forefront of the current conversation.
An ICO investment is made via a cryptocurrency and investors get coins (tokens) instead of shares and thus, many ICOs fall outside existing securities regulation. The last six months of 2017 saw ICOs gaining increased attention from businesses and investors with funds raised 40 times more than in the previous year. ICOs have become popular because businesses can obtain new funding with less complexity and greater speed than traditional methods.
Narayanan Vaidyanathan, head of business insights at ACCA, says:
‘Innovation is crucial to an organisation’s long-term success, but in future, businesses will need to be mindful of the risks and ethical issues posed by cutting corners in using unregulated alternative funding methods.
‘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. Wider risks involved pertain to ICOs being used as vehicles for money laundering.’
Regulators from around the world have adopted various approaches to curb threats posed by investments in ICOs and focus on the two headline features of protection for unsophisticated participants, and whether an ICO qualifies as a security with the associated regulatory controls.
In the US, the Securities and Exchange Commission has identified certain ICOs, which are not acceptable and has put a stop to their fundraising, while others like South Korea and China have banned ICOs outright.
Narayanan Vaidyanathan continues:
‘Now is the time for professional accountants to keep abreast of the developments surrounding ICOs as blockchain and distributed ledger technologies have the potential to be a real disruptor of the finance function. There is a vast opportunity for accountants to guide organisations by staying on top of regulatory announcements in their jurisdictions, and more generally to bring their training in risk, compliance and governance along with their ethical compass to this emerging area.’
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