Crypto and regulation come as a package deal these days — whether we’re talking about the development of crypto space and ICOs, regulation is always something that has to be considered before moving forward. Starting from 2017, when China took the plunge and banned crypto exchanges and ICOs, to nowadays when countries are trying to figure out the best policies to protect investors and not to harm innovations at the same time. For investors and founders, the most important thing is the current regulation landscape and how many ICOs actually satisfy the authorities’ requirements?\n\n### How it all started\n\nThe first ICO was held in 2013 by [Mastercoin](https://en.bitcoinwiki.org/wiki/Mastercoin), and at the end of that same year [Ethereum](https://ethereum.org/) was proposed by Vitalik Buterin. Ethereum launched its ICO in 2014 and introduced smart contracts, including ERC20, which projects then started to widely use to raise capital. The problems, however, started with [DAO](https://en.wikipedia.org/wiki/The_DAO_%28organization%29). This organization raised about $50 million in 2016 and was hacked soon after. In July 2017, the Security and Exchanges Commission (SEC) announced that DAO should have been considered a security — and a couple months after that, The People’s Bank of China [declared](https://www.coinspeaker.com/peoples-bank-china-declares-icos-illegal/) ICOs illegal and required them to cease immediately (the ban is still active and 30 ICO projects of Chinese origin had to choose another country for ICO registration in [Q3 2018](https://icorating.com/pdf/74/1/8TuF3swJWq8J82o4CnGI6dyEn3GQYhw9qdKTAE7U.pdf)). Though the situation was heating up with regulators starting to tighten the screws, ICOs could not be stopped that easily. The market boomed at the end of 2017, reaching peak in January 2018 when [over $2.2 billion](https://next.autonomous.com/thoughts/crypto-did-icos-raise-300-million-or-2-billion-in-september-depends-who-you-ask) were raised through ICOs.\n\n### Regulations: the current landscape\n\nThe ICO boom was followed by a downturn in Summer 2018 — and tightening regulations may be one of the reasons for it. During 2018, the shift from retail investors to institutional ones was taking place, and as the recent report by the Autonomous Next shows, venture capital funds invested [over $1.6 billion](https://next.autonomous.com/thoughts/crypto-did-icos-raise-300-million-or-2-billion-in-september-depends-who-you-ask) in blockchain projects in August 2018. Funds collected through ICOs, on the other hand, fell 80% from January to September 2018. The number of ICOs that managed to raise over $1 million [decreased to 54](https://medium.com/icobox-io/quarterly-cryptocurrency-and-ico-market-analysis-q3-2018-5e75961d931c) in September from 110 in May, and the maximum amount collected in Q3 2018 was [just $134 million](https://medium.com/icobox-io/quarterly-cryptocurrency-and-ico-market-analysis-q3-2018-5e75961d931c).\n\n!(https://hackernoon.com/hn-images/0*Y3E7W9R8Y8NAwfch)\n\n[source](https://next.autonomous.com/thoughts/crypto-did-icos-raise-300-million-or-2-billion-in-september-depends-who-you-ask)\n\nWhat becomes particularly important under the current market conditions is:\n\n1. **How to safely conduct an ICO**\n2. **Operate the project legally after fundraising, which also requires authorization and licenses**\n\nThere are proactive countries with favorable regulation and clear guidelines for ICOs, as well as markets with complicated or indefinite positions.\n\n### Europe — wait-and-see\n\nEurope is [not in a rush to regulate ICOs](https://hackernoon.com/cryptocurrency-regulation-update-november-2018-d9b17837aeec) — regulators are considering crypto on a case-by-case basis. [Bruegel](http://bruegel.org/), a European think tank specializing in economics, [suggested](https://hackernoon.com/cryptocurrency-regulation-update-october-2018-7e1275932694) that the members of the EU could follow their own approach to ICO regulation before [ESMA](https://www.esma.europa.eu/) (the European authority responsible for EU’s financial system) will propose a coordinated one for the whole union. Although no laws against ICOs were yet enforced by ESMA, warnings were repeatedly issued to investors. In addition, the regulator has been pretty clear that ICOs globally, including those in the EU, [should comply](https://hackernoon.com/cryptocurrency-regulation-update-november-2018-d9b17837aeec) with all KYC and AML laws to be legit.\n\nSome of the European countries are already taking their own steps to control the ICO space:\n\n* **_France —_** The country has been pretty supportive of ICOs and cryptocurrencies in general during the last two months — in October 2019, following a public forum, the [AMF](https://www.amf-france.org/en_US/) Board [decided](https://www.amf-france.org/en_US/Actualites/Communiques-de-presse/AMF/annee-2018?docId=workspace%3A%2F%2FSpacesStore%2F57711a6c-4494-4215-993b-716870ffb182) to continue work on a specific legal framework for ICOs. The framework will allow project founders and investors to have more clarity on regulation. Less then a month later, the finance commission in France’s lower house of parliament [confirmed](https://uk.reuters.com/article/us-france-bitcoin-tax/french-lawmakers-back-plans-to-ease-taxes-on-bitcoin-gains-idUKKCN1NC24K) its plans to ease taxes on Bitcoin sales and thus bring it in line with other capital gains tax. This amendment must be approved by the broader parliament though, and no exact date has yet been set.\n* **_Switzerland —_** For a long time, Switzerland has been promoting itself as an innovation-friendly cryptocurrency hub — ever since the Swiss town of Zug [started to accept Bitcoin](https://www.swissinfo.ch/eng/business/crypto-valley_zug-first-to-accept-bitcoin-for-government-services/42143908) as payment for government services in 2016. In February 2018, the Swiss Financial Market Supervisory Authority, FINMA, [issued a set of guidelines](https://www.finma.ch/en/news/2018/02/20180216-mm-ico-wegleitung/) for ICO projects, which stated, “Each case should be decided on its individual merits.” The regulator also stated that some types of projects may have to obtain a banking license. Finally, all token issuers should comply with AML regulations.\n* **_UK —_** In the UK, the Financial Conduct Authority (FCA) doesn’t provide specific guidelines to determine whether ICOs fall under country regulations and deal with such questions on a case-by-case basis. For this reason, many ICOs are not subject to FCA clearance right now. Still, ICO authorization [depends on](https://sterling-law.co.uk/en/initial-coin-offering-ico-regulated-uk/) whether it involves activities like dealing, arranging transactions, or providing financial or advisory services for the investment industry in the country.\n\nSwitzerland was the most popular hub for ICOs in Europe in Q1-Q3 2018 — the country’s token sales reached [$555 million](https://static1.squarespace.com/static/5a19eca6c027d8615635f801/t/5bc72f94a4222f9ca0750b0e/1539780519641/State+of+the+Token+Market+2+FINAL.pdf); UK followed with almost $490 million.\n\n!(https://hackernoon.com/hn-images/0*B39iSftEUmEIaQUX)\n\n[https://www.fabric.vc/report/](https://www.fabric.vc/report/)\n\n### USA — twofold approach\n\nThe US is still an important market for ICOs [— ICObench ranks](https://icobench.com/stats) it as the country with the largest number of ICOs ever conducted (675 projects in total). [ICO Rating shows](https://icorating.com/report/ico-market-research-q2-2018/) that in Q2 2018, despite all the regulation issues, the US was leading in terms of ICO projects registered there. The question is whether this trend will continue, as there is a high degree of uncertainty here.\n\nThe SEC has recently followed up on a series of subpoenas it issued to dozens of projects in the beginning of 2018, being particularly interested in the projects that didn’t ensure only accredited investors participated in fundraising. Debates are continuing as to whether or not ICO tokens should be considered securities and thus be registered with SEC. But a [Howey Test](https://consumer.findlaw.com/securities-law/what-is-the-howey-test.html) is used to determine this. For those selling securities, there are [exemptions from regulation](https://hackernoon.com/ico-or-sto-who-wins-fd43c3ee7b8d) that can be used in order to avoid the difficult, expensive, and time consuming process of SEC registration.\n\nThere were no ICOs registered with the SEC until March 2018, when the Praetorian Group [officially filed](https://www.praetoriangroup.io/company/news/) to register the PAX coin (waiting for approval). In addition, [18 projects (at least) completed offerings](https://www.smithandcrown.com/q2-2018-material-development-in-a-bear-market/) using exemptions from regulation in Q2 2018.\n\n### Singapore — friendly crypto hub\n\nSome of the markets are more proactive in their approach to ICO regulation than others and have legislated or developed methodologies, criteria, or guidelines for assessing ICOs. These include, among others, [Gibraltar](http://gibraltarfinance.gi/20180309-token-regulation---policy-document-v2.1-final.pdf), [Jersey](https://www.careyolsen.com/briefings/jersey-publishes-ico-guidance-note), Malta, Lithuania, the Cayman Islands, and Singapore. Singapore, in particular, became a true crypto hub in 2018, ranked [second on ICObench](https://icobench.com/stats) by number of ICOs held. In August 2018, Singapore overtook the US in the ICO count for the first time in history, [Elementus shows](https://elementus.io/blog/ico-market-august-2018/). ICO Rating’s report proves the significance of Singapore for blockchain development — as [of Q3 2018](https://icorating.com/pdf/74/1/8TuF3swJWq8J82o4CnGI6dyEn3GQYhw9qdKTAE7U.pdf), 46 ICO projects were registered in the country, raising $241 million in total, although only 16 of them actually had origins in Singapore! This means that the migration of ICOs into countries with favorable jurisdictions is taking off.\n\n!(https://hackernoon.com/hn-images/0*65h-lpv0oBKoimWg)\n\n[https://elementus.io/blog/ico-market-august-2018/](https://elementus.io/blog/ico-market-august-2018/)\n\n* **Singapore** has a positive attitude towards the regulatory treatment of cryptocurrencies. In November 2017, the Monetary Authority of Singapore (MAS) [published](http://www.mas.gov.sg/News-and-Publications/Monographs-and-Information-Papers/2017/Guidance-on-Digital-Token-Offerings.aspx) a set of guidelines, which stated that it will not regulate digital currencies but rather the activities involved. (https://sbr.com.sg/sites/default/files/singaporebusinessreview/print/SBR_2018_AugSept-26-28.pdf)MAS [expects ICO issuers](https://sbr.com.sg/sites/default/files/singaporebusinessreview/print/SBR_2018_AugSept-26-28.pdf) to address AML and conduct independent legal due diligence in order to be sure that the tokens are not securities. Ravi Melon, managing director of MAS, [explains](https://cryptovest.com/news/singapore-should-not-implement-extremely-lax-crypto-regulation-c-bank-boss-says/) that there are three types of tokens: utility, payment, and security (the only one that requires MAS registration).\n* **Thailand** is also moving towards clear ICO regulation. In November 2018, the Thai SEC [announced](https://ethereumworldnews.com/thailand-sec-announces-imminent-launch-of-countrys-first-cryptocurrency-ico-portal/) the approval of the first ICO portal in the country. Earlier this year, the regulatory framework for ICOs was published. As a result, no less than 50 ICO projects [expressed interest](https://bitcoinist.com/thailand-50-cryptocurrency-ico-license/) in acquiring a new Thai crypto license — though it’s hard to predict how many of them will actually be approved.\n* **The Cayman Islands** have become another hub for ICOs — in [Q3 2018](https://icorating.com/pdf/74/1/8TuF3swJWq8J82o4CnGI6dyEn3GQYhw9qdKTAE7U.pdf), 12 projects were registered there, which raised $125 million in total. [According to Library of Congress](https://www.loc.gov/law/help/cryptocurrency/world-survey.php), “the Cayman Islands appear to have a fairly flexible regulatory environment for cryptocurrencies and blockchain technologies.” There is no specific regulation for ICOs in this territory, but legislation such as Securities Investment Business Law or AML are applicable on a case-by-case basis. The authorities avoid rushing with ICO laws to enjoy benefits of blockchain technology.\n\n### So, what do you need to operate a blockchain project legally?\n\nAs we’ve already seen, the regulations differ a lot from country to country. In many of them, there is no precise framework as to how ICOs should be treated — the projects are examined on a case-by-case basis. That is why it’s quite hard to evaluate the share of ICOs that currently do meet all the regulations. However, what we know for sure is that KYC and AML procedures have already become a must for all projects that want to enter the market. Only 21% of 4,780 ICOs [published on ICObench](https://icobench.com/stats) met this criteria, and just 10% had a prototype or MVP available. On the other hand, of the 738 ongoing ICOs, 313 satisfy KYC requirements, and 208 have an MVP or prototype. This means that over 70% of ICOs are vulnerable to legal issues.\n\n!(https://hackernoon.com/hn-images/0*v20iCecynPrlh2FQ)\n\nChoosing a favorable jurisdiction and making sure that you comply with its regulations or exemptions, plus carrying out all KYC and AML procedures, are the necessary steps that must be taken for all projects. However, that’s not the only thing to think about. Once you are done with fundraising and start operating a company in the fintech space, you’ll need a special license for your activities.\n\nAlthough each company needs a license to operate in this industry, we’ll focus on financial startups here — specifically the banking ones.\n\n1. Throughout 2018, projects offering financial services [have been steadily leading](https://icorating.com/pdf/74/1/8TuF3swJWq8J82o4CnGI6dyEn3GQYhw9qdKTAE7U.pdf) in the number of ICOs. [In Q3 2018](https://icorating.com/pdf/74/1/8TuF3swJWq8J82o4CnGI6dyEn3GQYhw9qdKTAE7U.pdf), banking and payments startups were ranked third by most funds raised.\n2. The process of acquiring a banking license is particularly frustrating and time-consuming, thus it makes sense to apply for it at the early stage of product development.\n\n!(https://hackernoon.com/hn-images/0*vBvE1ljCQfO1bXgJ)\n\n[https://icorating.com/](https://icorating.com/)\n\nThe list below proves this statement and features most well-known cryptobanks, which managed to raise over $50 million during their ICO ([Bankera](https://icorating.com/ico/bankera/), [Tenx](https://icorating.com/ico/tenx/)), were fully licensed by the authorities ([Platio](https://icobench.com/ico/platio)) or attracted funding from established VC investors ([Wirex](https://en.wikipedia.org/wiki/Wirex)).\n\n* [Platio](https://platio.io/?utm_source=hackernoon&utm_medium=article&utm_campaign=1) — A smart banking ecosystem that provides banking and trading services in three asset types: fiat, crypto, and stocks. The company is authorized by the FCA to make and receive payments and they are licensed by EU authorities to make payments in crypto and fiat currencies. The [team behind Platio](https://medium.com/@platio/platio-roadmap-announced-641c56dd3ebd) says, “Licensing is a whole area in finance that — if not addressed timely — won’t allow the fintech business operate in full compliance with international and local regulations.” The license allows Platio clients to make real transactions and exchange operations, as well as hold fiat funds in segregated accounts.\n* [Bankera](https://bankera.com/) has a payment institution license and is authorized to operate in the European Economic Area. However, the company hasn’t acquired its banking license within the EU yet, which means it cannot yet become an authorized issuer and acquirer of payment cards, thus having to depend on correspondent bank services. Bankera is expecting to get the license [in late 2019 only](https://icorating.com/upload/whitepaper/YLuetfjRzqDjwWwCnfi8BN3IcZ3l2ytV6AtTBz1M.pdf). Until then, the company will not be able to introduce some of the core banking services, such as deposits or investments.\n* [TenX](https://tenx.tech/en/pay-token/) (closed ICO in June 2017) has been waiting for its banking license to operate as a financial institution for several months already. As of now, they have confirmed that they do [hold a valid BIN](https://twitter.com/tenxwallet/status/1013039458885816321) (Bank Identification Number) from the major card companies. A BIN identifies the institution issuing the card, and though it does not give the company the right to introduce banking products yet, it is a big step towards getting a banking license.\n* [Wirex](https://wirexapp.com/) has recently [received](https://wirexapp.com/what-the-fca/) its e-money license from the FCA. The team says that it can take up to 12 months for the FCA to determine whether or not to give a license to the organization, and the whole process requires companies to submit all the details of how a product works, the precise description of internal policies, security mechanisms, team biographies, stakeholder lists, and the proof of sufficient capital available to offer regulated services.\n\nThe companies listed above are notable examples of licensed banking businesses on blockchain. There are other projects not that successful, at least for now. [Nebeus](https://www.nebeus.com/) hasn’t acquired its banking license yet. It needs the [e-money license](https://startacus.net/culture/fintech-startup-nebeus-aims-to-bring-borderless-banking-to-2-billion#.W_fICegzbIU) from FCA to serve a wider audience. [Fiinu](https://fiinu.com/), which [launched an ICO](https://icobench.com/ico/fiinu) at the end of 2017 and was planning to become a fully licenced bank by Q3 2018, is still [on pre-application phase](https://fiinu.com/) of the Bank of England authorisation. [Seba](https://seba.swiss/), a Swiss cryptobank, is [planning to get its banking license](https://cointelegraph.com/news/swiss-crypto-bank-startup-expects-to-receive-banking-securities-dealer-license-in-2019) in 2019, so it’s not going be released until then.\n\nGetting a banking license is time consuming and expensive. Those who are fully-licensed or still waiting and have already made substantial progress are the rare ones that will be able to offer financial services legally, as it was initially planned when people invested in them during their ICOs.\n\n### Conclusion\n\nFundraising for blockchain projects is challenging nowadays, as countries are making up their minds about ICOs and tightening regulations. Some of them, including the US, are losing positions to more favorable ICO jurisdictions — such as Singapore or the Cayman Islands, where $241 million and $125 million were raised [in Q3 2018](https://icorating.com/pdf/74/1/8TuF3swJWq8J82o4CnGI6dyEn3GQYhw9qdKTAE7U.pdf), respectively. Proactive members of the European Union are also taking the lead thanks to clarity in ICO guidelines — in Switzerland, token sales reached $556 million [in Q1-Q3 2018](https://static1.squarespace.com/static/5a19eca6c027d8615635f801/t/5bc72f94a4222f9ca0750b0e/1539780519641/State+of+the+Token+Market+2+FINAL.pdf).\n\n!(https://hackernoon.com/hn-images/0*o9L0HcsBI8X10vaU)\n\nFor founders choosing the right jurisdiction that guarantees their project won’t be subject to unexpected shutdown becomes a must. Still, 70% of ICO projects are vulnerable to legal issues simply due to the lack of KYC and AML procedures, as we have already mentioned. Operating legally is the other side of the coin. Even if you make sure your project satisfies all ICO requirements, you still have to think about the licenses to conduct business according to the law. This is, understandably, a question of particular importance for the banking projects responsible for people’s money.\n\n#### About the author:\n\n[Kirill Shilov](http://twitter.com/kirills4ilov) — Founder of Geekforge.io and Howtotoken.com. Interviewing the top 10,000 worldwide experts who reveal the biggest issues on the way to technological singularity. Join my **#10kqachallenge:** [GeekForge Formula](https://formula.geekforge.io/).