LONDON (Reuters) - Gibraltar will introduce the world’s first regulations for initial coin offerings with dedicated rules for the cryptocurrency sector whose fast growth has triggered concern among central bankers.
They are worried about financial stability and protecting consumers but regulators have so far adopted a patchwork approach to ICOs, ranging from bans in China to applying existing securities rules in the United States.
This has created legal uncertainty for transactions that sometimes straddle many countries.
An ICO involves a company raising funds by offering investors tokens in return for their cash or cryptocurrency such as bitcoin, as opposed to obtaining shares in the company from a traditional offering.
Over $3.7 billion (£2.6 billion) was raised through ICOs last year, up from less than 82 million euros (£72.7 million) in 2016, a leap that has rung alarm bells among central bankers as some firms rush to issue tokens before new rules are introduced.
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Gibraltar’s government and Gibraltar Financial Services Commission (GFSC) said lawmakers will discuss a draft law in coming weeks to regulate the promotion, sale and distribution of tokens connected with the British overseas territory.
The GFSC said it would represent the first set of bespoke rules for tokens in the world.
“One of the key aspects of the token regulations is that we will be introducing the concept of regulating authorised sponsors who will be responsible for assuring compliance with disclosure and financial crime rules,” said Sian Jones, a senior adviser to the GFSC.
The regulation will establish disclosure rules that require adequate, accurate and balanced information to anyone buying tokens, the government and Financial Services Commission said in a joint statement.
Central bankers have lined up in recent weeks to call for cryptocurrencies and ICOs to be regulated, saying that while innovation in finance can bring benefits, consumers must be protected.
“Tokens could post substantial risks for investors and can be vulnerable to financial crime without appropriate measures,” the finance ministers and central bank governors of France and Germany said in a letter on Friday.