Published: Wed, September 13, 2017
Business | By Max Garcia

FCA calls out ICOs as potential hotbed for fraud

FCA calls out ICOs as potential hotbed for fraud

The regulator warned that the coins issued in ICOs are subject to extreme volatility, often carry little or no investor protection, and are high-risk given the unregulated nature of the space and early stage of many projects.

Sometimes thought of as a digital corollary of an initial placement offer (IPO), ICOs see issuers provide prospective investors with a proprietary coin or token related to a specific firm or project, in exchange for cryptocurrencies.

It adds that you should only invest in an ICO if you are an experienced investor, confident in the quality of the ICO project itself such as the business plan, technology, and people involved, and you're prepared to lose your entire stake.

ICOs have exploded in popularity this year, becoming the preferred method for raising capital by blockchain startups. The majority of ICOs are based on the Ethereum network.

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.

The FCA is now looking at whether to introduce new regulation to cover the space and stopped short of doing so on Tuesday. However, depending on how they are structured, some ICOs may involve regulated investments and firms involved in an ICO may be conducting regulated activities.

"Businesses involved in an ICO should carefully consider if their activities could mean they are arranging, dealing or advising on regulated financial investments. In addition, digital currency exchanges that facilitate the exchange of certain tokens should consider if they need to be authorised by the FCA to be able to deliver their services". The list of active, upcoming and recent ICOs on the website "ICO alert" covers 31 pages of A4 paper and includes around 600 companies.

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