South Korea bans raising capital through new cryptocurrencies

South Korea said on Friday that it will ban individuals and companies from raising funds through digital cryptocurrencies.

The country will no longer allow “initial coin offerings” (ICO), in which people and small companies raise funds for startups by selling tokens. The value of such tokens are often promised to increase as a company’s own value increases.

{mosads}”Raising funds through ICOs seem to be on the rise globally, and our assessment is that ICOs are increasing in South Korea as well,” South Korea’s Financial Services Commission said in a statement following a meeting with the country’s finance ministry, the Bank of Korea and the National Tax Service.

The commission noted that the rule will be enforced with “stern penalties.”  

China also banned ICOs earlier this month, a move that came with shutdowns of several cryptocurrency exchanges. The harsher rules have reportedly not stopped traders from buying and selling cryptocurrencies like Bitcoin.

ICOs have become an increasingly popular way to raise money for companies not large enough to raise capital through an initial public offering of stock. ICOs raised $2 billion in the first nine months of 2017, according to Forbes.

Venture capitalists have taken notice. Established firms in Silicon Valley like Sequoia and Andreessen Horowitz invested in the highly-touted ICO of Filecoin — a service that’s been billed as an Airbnb-style solution for space on servers and extra computer storage.

In the U.S., the Securities and Exchange Commission has issued guidelines for ICOs and warned against predatory behavior, but has not indicated that it will take similar action to China and South Korea on such fundraising.