Ashley Fox, a Member of the European Parliament (MEP) representing the United Kingdom, wrote a draft report on proposed regulations for Europe's crowdfunding platform operators and companies. Work on crowdfunding regulations has been ongoing since last year, with a formal proposal from the European Commission (the EU's executive branch) coming in March with the mandate of developing a framework on "crowd and peer-to-peer finance."
According to Fox's note accompanying the legislative language for the proposal, the framework provides an opportunity to regulate token sales.
"This Regulation gives the opportunity to ICOs that want to prove their legitimacy to comply with the requirements of this regulation. Whilst this regulation may not provide the solution for regulating the ICO market, it takes a much-needed step towards imposing standards and protections in place for what is an excellent funding stream for tech start-ups," he wrote.
The report states that crowdfunding service providers "should be permitted to raise capital through their platforms using certain cryptocurrencies." However, while ICOs "offer new and innovative ways of funding," they can also be used to "generate substantial market, fraud and cybersecurity risks to investors."
The proposed regulation appears only to apply to public sales that raise less than 8 million euros, stating:
"...crowdfunding service providers that wish to offer an ICO through their platform, should comply with specific additional requirements under this Regulation. However, private placements, ICOs raising in excess of 8,000,000 [euros] or ICOs that do not use a counterparty do not fall within the scope of those requirements."
These new rules would require platforms to create a cap for crowdfunding efforts and follow certain securities laws, according to the document.
Fox emphasized the importance of providing some regulatory guidelines for the space, noting that "at present initial coin offerings are operating in an unregulated space and consumers are at risk from fraudulent activity taking place in this market."
While Fox published a draft proposal last week, he also wrote that he "believes that a number of changes should be introduced to improve the proposal," adding that "this regulation is an opportunity to provide regulation for initial coin offerings."