The Financial Conduct Authority (FCA), UK’s biggest agency for financial control, has issued a warning on Initial Coin Offerings. According to the statement from this agency, they were prompted to react because ICOs have been gaining popularity and there are more and more companies and especially start-ups that decide to raise funds using this method. The FCA was right in one – Initial Coin Offerings have become a very popular method for small companies to raise funds in order to expand their business.
The Financial Conduct Authority has issued a warning saying that Initial Coin Offerings are currently not regulated and that is possible that some of those ICO campaigns might be set forth with the purpose of committing a fraud and stealing funds from the investors. There were cases where investors became victims of frauds related to ICOs and because of that, many similar authorities from different countries have decided to issue the same warning or introduce measures in order to enforce greater control over ICOs.
The Initial Coin Offerings have been used as a tool in raising funds and this method enables investors to exchange their cryptocurrencies such as Bitcoin, Ether, and others for the coins or tokens of the company or even a single project. These tokens have been characterized as proprietary tokens and they represent a certain portion of ownership in the company. In many cases, these ICOs operate as initial public offering or IPO that functions on the principle of public exchange. However, according to the warning that FCA issued, these tokens often do not have any discernable value at all.
Besides that, FCA also stated that investing through ICOs comes with a great risk because those investments are considered to be speculative just like the entire market of digital currencies is considered to be the same. FCA says investors need to be careful and aware of the possible risk that might come with these kinds of investments. According to FCA, investors should not participate in ICOs without properly researching the company or the project and the people behind those companies or projects.
So far, FCA and the UK government have not passed any significant regulations that might impose bigger control over ICOs but this warning is the clear indication that might be happening very soon. Out of all the countries that have dealt with ICOs, China went the furthest and completely banned Initial Coin Offerings ordering companies to pay back all the money they collected using this method.
The United Kingdom is not the only country that warned investors about the possible dangers of ICOs. Prior to them, the United States and Canada have also issued warnings about this issue warning investors that some of those companies or projects might be involved in some illegal activities or direct fraud. Another issue that FCA officials have with ICOs is the lack of transparency when it comes to the company behind ICOs, their intentions, and the financial records. Additionally, the fact that each company determines the cost of the tokens they are selling through ICOs is yet another proof that this fundraising method is not regulated and that it could pose a potential danger for the investors and their funds.
Written by Vedran Ostojic
