SEC to clamp down on initial coin offerings

Wall Street's main regulator said yesterday that initial coin offerings (ICOs), a means of crowdfunding for blockchain technology companies, need to be subject to the same safeguards required in traditional securities sales.

Digital currency entrepreneurs are reaping a bonanza, raising millions quickly by creating and selling digital "tokens" with no regulatory oversight.

However, according to the Securities and Exchange Commission, the tokens can be considered securities, and therefore, will need to be registered unless a valid exemption applied.

"The innovative technology behind these virtual transactions does not exempt securities offerings and trading platforms from the regulatory framework designed to protect investors and the integrity of the markets," said Stephanie Avakian, the co-director of the SEC's enforcement division, Reuters reported.

According to commentators, the decision sent a message to blockchain startups that they cannot ignore investor protections, and could make some more cautious about fundraising via coin sales in the US.

Tech firms raised around $1.1 billion in 89 coin sales this year, roughly 10 times more than that in the whole of 2016, according to data compiled for Reuters by crypto-currency research firm Smith + Crown.

And this year alone there were 110 upcoming ICOS, according to tokendat.io, a website that tracks token sales.

According to the SEC, companies that raised money through the sale of digital assets must adhere to federal securities laws. The regulator added that issuers needed to register the deals with the government unless they have a valid excuse. The same also applied to exchanges that offer trading of cryptocurrencies like bitcoin and ether.

''It's been a long time coming and this is a big deal,'' said Angela Walch, associate professor at St. Mary's University School of Law, Bloomberg reported. ''People have been waiting for some kind of signal from regulators on ICOs.''