UAE Securities and Commodities Authority Greenlights ICO Regulation

The United Arab Emirates’ Securities and Commodities Authority (SCA) just gave the green light to a plan that would rein in ICOs and classify them as securities, according to a report penned by Forbes.

“In light of the rapid development of the digital tokens market and the response thereto by the regulators in a number of countries worldwide towards regulating the initial coin offerings (ICOs), the SCA Board of Directors has approved the SCA plan to regulate the ICOs and recognize them as securities,” a statement by the organization said.

This wasn’t much of a surprise, as the SCA had warned investors earlier this year about ICOs, citing a lack of protection mechanisms as one of its concerns.

“ICO information made available to investors may be unaudited or incomplete and may present a given investment case in an unbalanced and misleading manner (by emphasizing the potential benefits while overlooking risks, for example),” the circular by the SCA said.

The SCA has not provided any further context about how it will treat ICOs that offer what is known as “utility tokens,” which some regulators around the world—including the US SEC—do not classify as securities.

If this regulation resembles that in the United States, we might possibly see ICOs move away from offering public token sales and attempt to sell them to larger accredited investors. However, it’s possible that the SCA would want this practice to enter under its purview as well.

The regulator’s haste in its announcement may have come in response to trends in the ICO market of 2018, where we are seeing a sharp increase in the amount of capital startups have raised collectively in comparison to last year.

Q2 2018 fundraising has risen to $8.3 billion, a doubling of what we saw in 2017. In spite of all of this, only half of the projects actually reach their goals.

While the prospect of purchasing tokens might seem appealing to amateur investors, the chances of them getting burned are also much higher than in traditional markets. Given this level of risk, it was only a matter of time before authorities in various countries attempted to establish some standards in this market.