Tension is mounting in the blockchain industry after financial regulators have embarked on a fact-finding survey of the initial coin offerings (ICOs) market. The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) downplayed the meaning of the probe, saying that it is intended to confirm if their “ICO ban” is observed well. But some watchers cautioned that financial authorities might launch full-scale “mop-up operations” on the occasion of the ICO market survey.

◇Project teams in trouble over level of replies= The FSS sent questionnaires concerning its investigation to ICO project teams based in Korea on Sept. 10. Teams planning for ICOs as well as those having completed them were included but some teams have not received questionnaires. The deadline for responses is Sept. 21.

Industry watchers say the level of replies required in the questionnaire is unusually detailed. Companies appear in trouble over how they can react to the questionnaire. That’s because they cannot avoid responding to the questionnaire sent by the FSS supervising ICOs but have concerns that they might experience disadvantages after making public full details. A lead lawyer involved in several ICO projects said, “We cannot turn down the regulatory body’s request but worry about how minute our responses should be.” “The questionnaire is quite detailed beyond the typical level,” he said, adding that “conversely, that could be seen as a kind of guidelines suggested by the FSS.”

The questionnaire is divided into five parts: an overview of the company, projects, ICO, PR and benefits and rights given to token investors. In so doing, the FSS is reportedly seeking to figure out the relationship between a local company and token issuer; profit structure of a project and its progress; trait of tokens and need to issue them; the status of local investors’ participation in ICOs; relations with crypto exchanges including terms of listing; and PR activities in Korea.

The contents of the questionnaire are in the same context as what ICO project teams have worried so far. They have been pressing for token issuance by establishing corporate bodies or foundations in such countries as Singapore in fear of possible problems. They thought that tokens, in particular, which have a trait of securities, could be subject to regulation under the Capital Market Act. Marketing approaches toward domestic investors adopted by project teams varied. Some teams didn’t carry out local marketing in fear of regulations but others conducted publicity campaigns briskly. Korea is perceived as a country where ICO investment is most active in the world.

As prices of most cryptocurrencies including Bitcoin and Ethereum have declined, the financial health of these project teams allegedly worsened considerably, compared with the first half. So it’s increasingly doubtful if they could comply with the road map they promised to investors.

◇Will penalties be slapped on offenders? = Noting that (the FSS) intends to figure out what problems the past ICOs had from the perspective of the capital market, a CEO of a local project that has completed an ICO said, “Now the time has come.”

Cryptocurrency companies seem in a state of high tension. Upon receiving the questionnaires, they immediately began to discuss how to deal with the issue with advisory counsels. What unnerves them most is whether the regulators will stop at a fact-finding survey or whether penalties will be slapped based on replies. It’s true authorities, including the Fair Trade Commission, used to conduct a fact-finding survey on companies with regard to an issue not governed by regulations. However, given that “the questionnaire contains all details,” blockchain companies are in anguish over the level of their replies.

The blockchain industry is divided over the investigation. A lawyer who advise on blockchain and cryptocurrencies said, “The FSS seemingly wants to know how (ICO) projects are now and what damages local investors could suffer in the future,” noting that the regulatory body may intend to figure out what it can handle directly or not in such matters as local and overseas corporations, equity and utility tokens and foreign and local investors. On the contrary, another lawyer speculated that the survey may be “a prior research aimed at uprooting ICO-related frauds or other irregularities in the second half.”

The authorities appear to have both a survey and follow-up measures in mind. An FSC official said, “Following our ban on ICOs last year, we are conducting a survey to confirm if the rule is kept well.” But he hinted at criminal punishment, saying, “The United States asks the prosecution to indict offenders after conducting similar surveys. We will also carry on with follow-up procedures based on the results of the survey.”

Some industry watchers hopefully take the latest survey as a prelude to reshaping the system, arguing that the government has been carrying out internal reviews concerning crypto exchanges and ICOs. However, the FSC official firmly said, “The survey has nothing to do with institutionalization.”

The FSS will begin analyzing the collected questionnaires on Sept. 21. The financial authorities could make another move by the year’s end after going through analysis for a month or two, according to industry sources.

/Doobo Shim Reporter shim@decenter.kr

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shim@decenter.kr