Just about every international organization that touches finance has postulated on initial coin offerings (ICOs) and what should be done with this new form of access to capital. Last week, the Organization for Economic Cooperation and Development (OECD) had their say.
Last fall, the OECD held a conference on blockchain/distributed ledger technology. OECD Secretary-General Angel Gurria opened the conference calling blockchain an “unprecedented technological revolution.” Thus, it is fair to say the OECD has been fairly interested in the technology that fuels ICOs.
In a 72 page report (embedded below), the OECD re-affirmed what many others have been saying: International cooperation is very important when it comes to regulation.
“ICOs are global in nature and trade easily across borders. A more coordinated global approach is necessary to prevent regulatory arbitrage and allow ICOs to deliver their potential for the financing of blockchain-based SMEs, while also adequately protecting investors.”
While the benefits of ICOs are pretty clear, such as speed and access to funding, the risks remain heightened as the largely unregulated environment has led to substantial fraud and poorly structured investment offerings.
That being said, the authors of this report believe that ICOs can be an inclusive process:
“In theory, ICOs can be more inclusive financing vehicles than traditional financing mechanisms, perhaps with the exception of crowdfunding. The unrestricted access to funding through an ICO by any company, coupled with the inclusive environment of networks created by subscribers to such offerings, foster inclusiveness during the fundraising and beyond. The fact that tokens are dividable and subscribers can buy fractions of newly-issued tokens allows for considerable flexibility in the participation of those wishing to limit their exposure according to their risk appetite.”
Can ICOs become mainstream, the authors ask?
“[it] seems inappropriate to consider ICOs as a potential “mainstream” financing mechanism for SMEs whose projects are not enabled by DLTs…”
In spite of the many pitfalls, such as investor protection challenges, the OECD states:
“When ICOs mature and develop, they have the potential to complement traditional bank and market-based lending, facilitating a better distribution of risk amongst market participants. A delicate balance will need to be achieved in the development or application of regulatory and supervisory requirements that will not deprive the ICO mechanism of its speed and cost benefits, particularly when it comes to smaller size offerings. Proportional application of regulatory requirements, as is the case in small public equity offerings in certain jurisdictions, could be considered as the way forward.”
So will anyone listen to the OECD recommendations?