New cryptocurrency coins could be worthless — European Union markets regulator

Marco Green
November 14, 2017

An ICO is a way of raising money from investors using virtual coins or tokens where these are issued and put for sale in exchange for fiat money for other virtual currencies such as Bitcoin or Ether.

Europe's top markets regulator said that these were unregulated and experimental, and warned of pitfalls in investing in such online crowdfunding, particularly by startups.

Firms involved in ICOs should give "careful consideration" to these activities, it warned, as failure to comply with European Union rules would be considered a breach.

In offerings of ICOs - a term borrowed from Initial Public Offerings (IPOs) on stock markets - a group of people creates its own virtual currency and raises funds by selling it to investors. The price of the coin or token is typically extremely volatile and investors may not be able to redeem them for a prolonged period.

If such operations fall outside of European Union rules and regulations, investors also can not benefit from legal protection if the investment goes sour, it said.

ESMA has released two statements, one on risks of ICOs for investors and one on the rules applicable to firms involved in ICOs.

Owing to instances of fraud, scams, and hacks, the status of ICOs remains uncertain, and the crowd funding mechanism has been the target of increased scrutiny by regulatory bodies around the world.

For companies involved in ICOs, ESMA said they need to ensure that their activities are compliant with relevant and existing legislation.

In its warning the FCA said ICOs are "very high-risk, speculative investments". Any failure to comply with the applicable rules will constitute a breach.

Other reports by Click Lancashire

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