The president of BaFin, Germany’s financial watchdog, is supportive of a global regulatory framework for initial coin offerings (ICOs). Critical of cryptocurrency financial rounds, Felix Hufeld advises private investors to “keep their hands off such things”.
BaFin’s President Hufeld Supports International Standards for Cryptocurrencies and ICOs
German’s Federal Financial Supervisory Authority (BaFin), an independent institution under the wing of the Federal Ministry of Finance, is the financial regulatory authority in the country. ICOs are likely to fall under its supervision once regulation is established.
It remains to be seen whether ICOs develop into a normal part of the financial system, but BaFin’s President Hufeld says regulators are discussing ways to properly develop financial regulation, he told Handelsblatt.
“We do not want to stifle innovation, but must avert dangers at the same time. For example, it is important for us to take action against money laundering and safeguard privacy rights of investors. In addition, there should be certain minimum standards for the underlying terms of the contract,” he said.
The agency has already published consumer warnings as the number and volumes per ICO keep growing enormously and investors are insufficiently protected. “Therefore, I can only advise private investors to keep their hands off such things”, he commented.
Not totally unregulated, cryptocurrency fundraisers which fall under existing securities law would be supervised by BaFin. Hufeld is against regulating faster than the market develops. “There is rarely anything good about it”, he said.
The Berlin Court of Appeals has recently ruled against the regulator’s view that Bitcoin et al. are units of account and thus financial instruments, which would fall under BaFin’s supervision. Hufeld said the court’s decision further pressures policymakers to set up regulation for cryptocurrencies and fundraisers.
“Such considerations are necessary for the sole reason that it is necessary to make financial regulation future-proof, also with a view to new technological phenomena such as crypto-tokens. As I have said, international standards seem worthwhile for me, so discussions take place in a variety of international forums.”
The regulator is not bound by the decision and it is plausible that it will not change its practice until new legislation is put forward or an administrative court confirms the Berlin court’s decision.
International law firm Reed Smith LLP advises cryptocurrency-related businesses to take a cautious approach and seek legal advice and the authorisation of BaFin. Without one, market participants may eventually be ordered to immediately cease business operations and pay a fine or serve up to five years in prison.