The focus of US regulators on fundraising through an initial coin offering (ICO) doesn’t mean that funds can’t be raised through token sales, according to principals at Harbor. In a blog post published on Tuesday, the compliance protocol group claims it is possible to conduct an ICO compliant with US securities law through its Regulated Token (R-Token) and a private ICO.
With ICO tokens now designated as securities by US regulators, ICOs must comply with US securities laws or face legal action. The way forward, according to Harbor Chairman David Sacks and General Counsel Josh Stein, is issuance under Harbor’s /R-Token standard, which can enforce the necessary restrictions on issuance and secondary trading, to be compliant with all US regulations, according to the post.
The /R-Token Standard is based on ERC-20 but contains additional code to check an on-chain Regulator Service before it trades, Harbor said in the post. The Regulator Service can be configured to meet relevant securities regulations, Know Your Customer (KYC) policies, Anti-Money Laundering (AML) requirements, tax laws, and more, they added.
When a trade is requested, the R-Token checks with the Regulator Service to make sure that the investor and the trade are compliant; otherwise the token throws off an error message and will not transfer. In the case of Section 4(a)(7), for example, R-token will ensure that a token is being transferred to an accredited investor after the initial 90-day period. The R-Token can also be implemented to ensure that the tokens trade only on approved trading platforms, according to the company.
Since ICO fundraising attracted the attention of US regulators last year, with the Securities and Exchanges Commission (SEC) now treating tokens as securities, concerns have heightened due to a combination of strict enforcement by the SEC and potential private litigation for ICOs.
“Harbor urges all ICO issuers and issuing platforms to embrace the Regulated Token Standard, which can enforce the necessary restrictions on issuance and secondary trading. There is no need to ignore current SEC rules; what’s needed is technology to comply with them,” stated Sacks and Stein.
Website link: https://harbor.com/
Blog post link: https://medium.com/harborhq/introducing-the-private-ico-pico-3e8b782924c1