The European Securities and Markets Authority (ESMA) today issued two separate statements that outline what it perceives as the risks initial coin offerings (ICOs) pose for investors and startups, respectively.
ICO is an acronym that means Initial Coin Offering, that is, initial offer of currency. The acronym ICO is very similar to the IPO, Initial Public Offering, a term used when a company goes public and wants to offer shares to potential investors in exchange for money. And it is that the ICO has to do with the financing of a business project.
Striking a concerned tone on the nascent state of the market, ESMA warned investors that the use of custom cryptocurrencies for fundraising comes with a “high risk” of capital loss. Adding to that, the authority alerted that ICOs may fall outside of EU laws and regulations, which in turn does not benefit investors.
According to a press release, the ESMA stated:
“ICOs are also vulnerable to the risk of fraud or money laundering.”
The markets watchdog’s second statement stressed that startups or open-source projects involved in ICOs are at risk of conducting regulated investment activities without observing applicable EU legislation, including its prospectus directive, the fourth anti-money laundering directive and other laws.
Firms involved in ICOs should give “careful consideration” to these activities, it warned, as failure to comply with EU rules would be considered a breach.
The news notably follows other recent ICO warnings including the Japanese FSA’s statement to investors on ICO risks, and another from Germany’s Federal Financial Supervisory Authority, which said: “Investors should be wary of the ‘numerous risks’ involved in token sales.”
Disclaimer: This press release is for informational purposes information does not constitute investment advice or an offer to invest. The views expressed in this article are those of the author and do not necessarily represent the views of infocoin, and should not be attributed to, Infocoin.