South Korea bans Initial Coin Offerings

Financial regulator worries about speculative investments going bad, fraud and crime

South Korea has banned initial coin offerings (ICOs), the practice of taking cash for Blockchain-powered services.

The United States' Securities and Exchange Commission (SEC's ) Office of Investor Education and Advocacy explains that ICOs see the promoter of an investment offer “ virtual tokens or coins” that can be used to access a platform, use software “or otherwise participate” in a project.

“Some promoters and initial sellers may lead buyers of the virtual coins or tokens to expect a return on their investment or to participate in a share of the returns provided by the project,” the SEC advises. “After they are issued, the virtual coins or tokens may be resold to others in a secondary market on virtual currency exchanges or other platforms.”

Whatever happens, the promoter ends up with cash and/or cryptocurrency. Investors end up with … well that's where things get interesting, because the SEC advice we linked to above was issued alongside a report suggesting that ICOs are securities in all-but-name. But the Commission also found that ICO promoters aren't playing by the rules of a more conventional float.

The whiff of weirdness around ICOs intensified when Paris Hilton backed on just hours before China banned them on grounds that they threaten its financial system.

China endured a big stock market deflation in 2015 that was blamed on a combination of poor regulation and government intervention. With Beijing already having plenty to do to manage conventional securities markets, banning the cryptocurrency crowd from inventing new forms of virtual money was not unexpected.

South Korea, however, is a significant and advanced economy where Bitcoin is widely adopted. The decision (in Korean) of its Financial Services Commission will therefore be noted around the world.

The Commission's statement says the ban's been made because “market funds are being pushed into a non-productive speculative direction”. The statement also notes that cryptocurrencies are known to have been have been used in several crimes, may be being used as a means of laundering money and that some ICOs may be frauds.

It also points out that ICOs have attracted regulators' attention in other nations, for the same “quack-like-a-stock, look-like-a-stock” reasons that worry the USA's SEC.

The statement outlines investigations into ICOs and cryptocurrencies in general.

South Korea is also likely sensitive to allegations that North Korea uses Bitcoin to evade international sanctions. ®

Sponsored: The Joy and Pain of Buying IT - Have Your Say


Biting the hand that feeds IT © 1998–2017