United Kingdom regulator issues warning about Initial Coin Offerings

Ivan Schwartz
September 13, 2017

Britain's markets watchdog has become the latest regulator to crack down on the booming "initial coin offering" sector, warning investors on Tuesday that "ICOs are very high-risk, speculative investments".

"You should be conscious of the risks involved and fully research the specific project if you are thinking about buying digital tokens".

ICOs have exploded in popularity this year, becoming the preferred method for raising capital by blockchain startups. Through this process, also referred to as a "token sale" or "crowdsale", investors are able to purchase a percentage of the newly issued cryptocurrency in exchange for a legal tender or other virtual currencies. "Typically ICO projects are in a very early stage of development and their business models are experimental". The majority of ICOs are based on the Ethereum network.

However, the largely unregulated and unproven fundraising method has provoked fears that many investors may not know what they are getting themselves into.

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The FCA is now looking at whether to introduce new regulation to cover the space and stopped short of doing so on Tuesday.

However, according to the regulator, the value of these "tokens", like crypto currencies in general, can be "extremely volatile and vulnerable to dramatic changes" and in some cases, have no discernible value at all. However, it warned companies to "carefully consider if their activities could mean they are arranging, dealing or advising on regulated financial investments". Some ICOs feature parallels with Initial Public Offerings (IPOs), private placement of securities, crowdfunding or even collective investment schemes.

Expert in financial services and technology Luke Scanlon of Pinsent Masons, the law firm behind Out-Law.com, said some of the FCA's messaging could be construed as positive for businesses considering ICOs, but that further detail is required to clarify the regulatory position in the UK.

Other reports by GizPress

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