International

FCA Warns Investors Could Lose All Their Money In ICOs

The United Kingdom’s Financial Conduct Authority (FCA) is warning initial coin offering (ICO) investors they could lose all of their money.

“The term ICO refers to a digital way of raising funds from the public using a virtual currency, also known as cryptocurrency,” the FCA said in a news post on its website. “An ICO can also be known as ‘token sale’ or ‘coin sale’. ICO issuers accept a cryptocurrency, like Bitcoin or Ether, in exchange for a proprietary ‘coin’ or ‘token’ that is related to a specific firm or project. ICOs vary widely in design. The digital token issued may represent a share in a firm, a prepayment voucher for future services or in some cases offer no discernible value at all.”

The FCA also listed the risks associated with them. Among the potential issues highlighted are that most ICOs are not regulated by the FCA and that several are based outside of the U.K. Another risk, according to the FCA is that ICOs offer zero investor protection.

“You are extremely unlikely to have access to U.K. regulatory protections like the Financial Services Compensation Scheme or the Financial Ombudsman Service,” the FCA noted in the post.

Price volatility and the potential for fraud were two other risks highlighted by the FCA. Other concerns mentioned by the organization include that many have inadequate documentation or are focused on early-stage projects that could result in investors losing their whole stake in the initiative.

Additionally, the FCA offered an advisory for those thinking of launching an ICO.

“Businesses involved in an ICO should carefully consider if their activities could mean they are arranging, dealing or advising on regulated financial investments,” the website post said. “Each promoter needs to consider whether their activities amount to regulated activities under the relevant law. In addition, digital currency exchanges that facilitate the exchange of certain tokens should consider if they need to be authorized by the FCA to be able to deliver their services.” 

The warning on the part of the FCA is just the latest in a series of missives by regulators around the globe. The U.S., Russia and China have all issued warnings about ICOs with China taking more radical steps than its counterparts around the world. China has already banned ICOs and is mulling banning cryptocurrency exchanges in the country.

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