UK finance watchdog warns on ICOs: Be ‘prepared to lose your entire stake’

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The FCA is warning investors they could lose everything.
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REUTERS/Richard Carson

LONDON – 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.”

2017 has seen a boom in ICOs, where early stage startups issue new digital currencies in exchange for real money that can be used to fund projects. Over $1.5 billion has been raised through ICOs so far this year.

However, the largely unregulated and unproven fundraising method has provoked fears that many investors may not know what they are getting themselves into. There are also fears that scammers may be attracted to the fundraising method, with some projects raising millions on little more than a white paper outlining their ideas.

The Financial Conduct Authority (FCA) said in a statement on Tuesday: “You should only invest in an ICO project if you are an experienced investor, confident in the quality of the ICO project itself (e.g. business plan, technology, people involved) and prepared to lose your entire stake.”

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.

The FCA is currently looking at whether to introduce new regulation to cover the space and stopped short of doing so on Tuesday. However, it warned companies to “carefully consider if their activities could mean they are arranging, dealing or advising on regulated financial investments.”

The FCA joins regulators in the US, China, Canada, Hong Kong, and beyond in cracking down on ICO activity in recent weeks. Last week the People’s Bank of China moved to ban ICOs in the country, sending cryptocurrencies plummeting.