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What the SET has in store for ICOs

A slew of new regulations will be issued to protect small-scale retail investors

Thailand’s Securities and Exchange Commission (SEC) is expected to issue its rules and regulations on Initial Coin Offerings (ICOs) next month, with the focus on protecting small-scale retail investors. The SEC has been swift in formulating a regulatory framework for this new form of fund mobilisation, whose name derives from that of Initial Public Offerings (IPOs) of stocks.
The SEC is in the process of amending its legislation to cover ICOs, which are legally seen as 
another type of security whose potential investment returns are 
neither interest income, as in the case of traditional debt securities, nor dividends as with traditional stocks.
Proponents have hailed ICOs as a new avenue to raising money for enterprises in the digital age, using block chain and related technologies as the new tools.
However, there remains a lot of misunderstanding about ICOs – as well as block chain and digital currencies, also known as crypto-currencies.
Boosting public awareness about financial technology (fintech) and capital-market technology is crucial to the success of Thailand’s 
adoption of digital and related technologies to modernise its economy and society.
For instance, ICOs have been lately related to digital currencies such as bitcoin and ethereum, which are themselves another separate challenge for regulators.
Yet ICOs have become the talk of the town since a subsidiary of Jaymart, a listed Thai company, issued Jfin coins to raise Bt660 million to develop a digital lending platform for micro-finance customers, using block chain and “smart contract” software.
In response, the SEC said it is 
finalising a set of rules and regulations to cover ICOs so as to protect small-scale retail investors. One of the proposed rules is that each investor not be allowed to invest more than Bt300,000 per ICO. This precaution is based on global research showing that ICOs carry a relatively high investment risk, with only 5 per cent of all ICOs found to be successful.
For small-scale retail investors, whose life-long savings are crucial to their eventual retirement, the risk-reward ratio must be properly explained and understood, especially in view of the hype associated with any new form of investment.
The regulator also plans to cap the combined share of small retail investments at no more than 50 per cent of the total amount of funds raised in each of the ICOs, since the Thai capital market is now dominated by small retail investors.
In addition, all ICO issuers will have to meet qualifications set by the regulator and are required to strictly follow the Know-Your-Customer rules to prevent money-laundering and other problems that anonymous investors might cause.
The new SEC rules will also likely require issuers to clearly spell out the objectives of their ICO fund-raising plan in a formal white paper. In the secondary market, platforms that provide exchange and trading services are similarly required to get a licence from the regulator.
On a positive note, many ICOs will likely benefit Thailand’s tech start-up businesses, which will be allowed to raise money without having to rely on middlemen or traditional banks and financial institutions.
Turning to ICOs, start-up founders can also avoid ownership dilution, which can happen if they need to offer new shares to venture capital funds or other new investors in return for fresh funds.

Published : February 22, 2018

By : The Nation