South Korean Financial Regulator Stands Firm on ICO Ban
February 2, 2019 by Akshay Makadiya
South Korean financial regulator, the Financial Services Commission (FSC), has maintained its stance prohibiting domestic crypto startups from raising money via Initial Coin Offerings (ICOs). The FSC decided to uphold the ICO ban owing to questionable practices among local crypto startups. Could a reformist approach from the financial regulator be more appropriate?
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Ineffective ICO Ban
According to a press release, the FSC has decided to continue the ICO ban based on a survey carried out by the Financial Supervisory Service (FSS), a government agency that regulates financial practices under the FSC.
The survey findings indicate that a number of crypto startups have engaged in fraudulent activities. For starters, some firms who claimed to launch their ICOs abroad have instead raised money from Korean investors, even with the ICO ban in effect since September 2017.
Bitsonline sought comment from Kang Kyung-won, the CEO of Presto–a South Korean blockchain startup fighting the ban–but at press time, Kang had yet to respond.
Other malpractices cited in the press release include the concealment of basic background information of companies to investors. The survey found that, in some cases, startups presented intentionally inaccurate information.
The three-month survey, initiated by the FSS in September last year, was sent to twenty-two of these enterprises that had launched ICOs. Only thirteen replied to the agency.
To circumvent the ICO ban, startups migrated to crypto friendly jurisdictions like Singapore and Switzerland to register their firms and formally launch the ICO. Although officially operating from abroad, these startups illegally raised the majority of the funds from Korean nationals.
The FSC claims that the combined capital raised from illicit fundraising campaigns tallied a whopping $509 million USD.
A Possible Reformative Approach
While there is a valid reason for concern, knowing that a significant number of ICOs are either fraudulent or have failed to realize their vision, a complete ICO ban does not make sense. Although the FSC is trying to better protect Korean nationals from scams, it is at the same time stifling innovation by pushing away genuine projects.
Instead, the FSC should have taken a progressive approach by formalizing the fundraising mechanism with the introduction of regulations. The government would then have had better control over the sector, as even with the ban in effect startups have managed to raise funds.
Following the ICO ban in 2017, considerable efforts have been made to revert the prohibition. Last year, a National Assembly officially proposed to lift the blanket ban on ICOs by preparing strict guidelines to protect investors.
The sovereign city-state of Singapore has set a great example by introducing formal guidelines for businesses that aim to raise funds via ICOs. The forward-thinking and liberal approach has made it one of the most favorable venues for launching ICOs in the world.
Will South Korea change its stance on ICOs any time soon? Share your views in the comments section below.
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