The initial coin offering is a crowd sourcing mechanism which is just similar to the IPO (Initial Public Offering). It’s a way in which new projects and companies can raise capital by selling crypto coins or tokens in exchange for cryptocurrency (Bitcoin, Ether, etc.).
Over 900+ companies have filed for ICOs around the world, and only 48% of them were successful. This indicates that a lot of companies are fraudulent and tend to cheat its investors.
Due to the popularity of the ICO in the past few years, many countries are working on the framework and regulations. In the UAE, the Security and Commodity Authority have completed its framework and will be implemented in the early months of 2019.
Here are some of the key takeaways from the framework from the ICO in UAE…
It ensures that a specific crypto asset can withstand and will be able to improve on risks and vulnerabilities including using new crypto assets. Passwords, crypto asset wallets and private keys can help in keeping your crypto assets secure.
It's absolutely necessary to monitor the origin and the destination of the crypto asset which helps in the identification of each and every trade/transaction that has been done.
Depending on the market demand and volatility, it can be said that the demands of the client are aligned with the Crypto Asset which is under process.
Crypto assets can help solve a lot of problems and it addresses that the market need to create value for its participants.
Apart from this, the Financial Service Regulation Authority (FSRA) has implemented some principles apart from its rules and guidelines.
Principle 1: Risk-Based Approach
In the Risk Based approach, people holding the crypto assets are expected to understand the risks associated with their activities and allocate proper resources to mitigate those risks by having a risk-based assessment for their activities and processes in regular intervals.
Principle 2: Business Risk Assessment
It requires people to identify the money laundering risks to which their businesses are exposed by considering factors such as nature, complexity, size, etc. Also, one must have clear cut understanding of the different terminologies and the working of the Crypto Asset Industry. The technical complications in the crypto industry must also be considered as an important risk while making decisions.
Principle 3: Know Your Customer
Knowing your customer is important in the crypto industry; especially when in the Crypto Industry where one can make transactions by going anonymous. This makes it extremely hard to trace back to the person and increases challenges for a lot of regulatory officials. Utilizing the Biometrics in transactions while dealing with a person in a non-face-to-face way is accepted by the FSRA as well.
Principle 4: Reporting
Reporting of suspicious activities/transactions can help the authorities in preventing further fraudulent work on those activities and accounts.
Principle 5: Record-keeping
By storing all the relevant information in an easy format which can be easily accessible can help in proper record keeping practices. This is important and must be available when the FSRA requests access to the records.
By following these guidelines and framework, one must go through the detailed analysis of the regulatory framework to ensure compliance, particularly in the context of a cross border ICO. The token structure and components should in all circumstances ensure that it provides investors with accurate information to enable it to make an informed investment decision.