October 11, 2017
The regulatory tide is inevitable when it comes to investments of unprecedented scale, involving vulnerable parties. Whether ruled out as illegal or met with hope and wisdom, regulatory authorities around the world are taking a hard look at modern financial instruments, acknowledging their role in the financial services industry.
A few new international parties have spoken out on the place ICOs are considered to be playing in their financial systems:
Taiwan’s Financial Supervisory Commission chairman Wellington Koo has told a joint session of the parliament and the cabinet that Taiwan will not follow the paths of China and South Korea in an outright ban on cryptocurrency. Instead, the head of Taiwan’s financial regulator pledged to keep an open space for development and adoption of both cryptocurrencies and blockchain technology in the country.
China recently banned crypto exchanges and ICOs, in which companies seek investment in the form of cryptocurrency to pursue crypto-related development, ahead of its critical National People’s Congress in mid-October. Korea prohibited ICOs and is reviewing the status of trading on its exchanges.
But both China and South Korea have allowed initial space for the crypto-ecosystem to grow unfettered. Now, both countries are assessing their experiences, and regulators are working with engaged and active ecosystems to iron out wrinkles. In Singapore, a FinTech "sandbox," or area of experimentation, effectively sponsors banks to get involved. As a result, the Infocomm Development Authority of Singapore in tandem with OCBC Bank, HSBC and Mitsubishi UFJ Financial Group just concluded trials of the first consortium in Southeast Asia to develop a know-your-customer blockchain prototype. This allows customers to provide their details just once before they are allowed to transact with all the banks on the chain. The benefits to consumers of such an approach are obvious.
Meanwhile, Taiwan has talked the talk on so-called FinTech innovation but failed to walk the walk. The future for FinTech looked bright when the FSC in 2016 released a white paper detailing targets for the years to come. Promoting blockchain was on that list, as was the aspiration to create a world-class FinTech incubation center, not to mention encouraging the use of tokenization technology.
The FSRA’s Guidance provides clarifications for those who seek to use ICOs to raise funds and those who are considering investing in them. Those ICOs comprising tokens which exhibit the characteristics of Specified Investments will be treated as such within FSRA’s regulatory framework. The Guidance also sets out that virtual currencies are treated as commodities, and advises caution to those seeking outsized investment returns due to their price volatility.
As the financial services regulator, the FSRA is acutely aware that ICOs do not always fit neatly into existing regulatory classifications. The FSRA, therefore, encourages market participants using ICOs to approach FSRA as early as possible in their fundraising lifecycle to determine a proportionate and appropriate treatment within the regulatory regime.
Mr. Richard Teng, Chief Executive Director, FSRA of ADGM, said, ICOs have transformed the capital formation landscape and global regulatory frameworks are evolving to adapt to such innovation. Participants exploring the issuance of ICOs that offer real value to the market and wish to operate within our regulatory framework are encouraged to engage us early to gain insights into the applicable regulatory regime.
Imagine a future in which you are a computer engineer who has just been offered a job at a Shenzhen-headquartered electronics company to assemble circuits and write codes for devices. On reaching one of China's wealthiest cities, you get a welcome email from your employer with details about your new colleagues, work profile, as well as Shenzhen's weather, air quality, temperature and drone activity.
Peichi Chung, assistant professor at the Chinese University of Hong Kong who has published papers on Asia's gaming industry, says innovation is of Shenzhen's most important asset.
"Shenzhen is one of the largest open cities in China. The Shenzhen government has a much open attitude towards creating industries and providing resources to support all kinds of initiatives. From a geographical perspective also, Shenzhen is able to attract a lot of IT professionals, especially those who go overseas to study and then relocate back here," she says.
Some of this was by design when the special economic zone was set up in 1979, but the rest was undeniably also an experiment in urban planning. In a recent WIRED documentary on Shenzhen, Juan Du, Aassociate Professor at HKU IDU Architecture, said even the city's planners would say that Shenzhen evolved in a way that was bigger and faster than they had predicted.
Jeff Lyndon, President & Co-founder at iDreamsky, a Shenzhen-based mobile game publishing platform backed by Tencent, says when Tencent set up shop it became a magnet for talented people to move here.
What has aided the startups industry's success is the fact that Shenzhen has a more stable labor force, given its population size and geographic location, in comparison to Shanghai and Beijing that have an influx of migrant workers from all over.
"Shenzhen has one of the most centralized technology hubs in China. 85 percent of us [gaming companies] are located in the Nanshan district and within that also, 70 percent are in the same complex. One only needs to be here for two days to see it all," he says.
"There are certainly people in Shenzhen who do cloning, but even this has to quickly branch into something of a more differentiated value. You don't make a lot of money making an inferior version of a better product."
"For example, people who want to make phones know there is no value in actually copying a Motorola phone. So they will take the guts of a Motorola phone and put it in a Mickey Mouse case. Essentially, they are taking two things that have neither been properly appropriated and create a new object that didn't exist before, but which people wanted."