All the reasons you shouldn’t buy ICOs, according to the world’s financial watchdogs

The SEC’s chairman is not impressed.
The SEC’s chairman is not impressed.
Image: Reuters/Aaron P. Bernstein
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Companies have raised more than $3 billion this year through initial coin offerings (ICOs), a bonanza that hasn’t escaped the attention of financial watchdogs. Regulators haven’t quite figured out how to deal with the newfangled fundraising method, which blends elements of crowdfunding via cryptoassets and traditional initial public offerings. At a minimum, financial watchdogs around the world have issued warnings to investors about largely unregulated ICOs, highlighting a wide variety of risks:

You could lose everything

“ESMA is alerting investors of the high risk of losing all of their invested capital”—European Securities Markets Association (ESMA), Nov. 13, 2017

There is a high risk of fraud…

“As these arrangements and the parties involved operate online and may not be regulated, investors may be exposed to heightened risks of fraud”—Hong Kong Securities and Futures Commission (SFC), Sept. 5, 2017

…including money laundering and terrorist financing

“The systemic vulnerability of ICOs to fraud, money laundering and terrorist financing increases the risk of investors losing the sums invested”—Germany’s Federal Financial Supervisory Authority, Nov. 9, 2017

You can buy tokens, but you may not be able to sell them

“In the worst case scenario where no secondary market develops, a consumer may not be able to liquidate his token holdings at all”—Monetary Authority of Singapore (MAS), Aug. 10, 2017

Disclosures are lacking

“The documentation provided by the white papers and terms and conditions is often objectively insufficient, incomprehensible or even misleading”—Germany’s Federal Financial Supervisory Authority, Nov. 9, 2017

A regulatory crackdown is looming…

“If they are securities, the offer and sale of these virtual coins or tokens in an ICO are subject to the federal securities laws”—US Securities and Exchange Commission (SEC), July 25, 2017

…yet investing regulations may not protect you

“You are extremely unlikely to have access to UK regulatory protections”—UK Financial Conduct Authority (FCA), Sept. 12, 2017

ICOs are illegal

Token sales are “illegal and disruptive to economic and financial stability”—People’s Bank of China, Sept. 4, 2017