European Financial Watchdog ESMA Warns ICO Investors, Companiesbr>
The European Securities and Markets Authority (ESMA), EU’s financial regulatory institution and European supervisory authority, is the latest financial regulator to issue a warning on initial coin offerings (ICO).
ESMA has released two statements, one on risks of ICOs for investors and one on the rules applicable to firms involved in ICOs.
Due to the rapid growth in ICOs globally and in Europe, the regulator said it is concerned that investors may be unaware of the high risks that they are taking when investing in ICOs. ESMA is also concerned that companies involved in ICOs may conduct their activities without complying with relevant applicable EU legislation.
The financial watchdog warned investors of extreme volatility in the price of the tokens and that investors may not be able to redeem them for a prolonged period. ESMA also signalled that some ICOs could fall outside of EU laws and regulations leaving investors without protections they might otherwise expect. The regulator added that ICOs are also vulnerable to the risk of fraud or money laundering.
For companies involved in ICOs, ESMA said they need to ensure that their activities are compliant with relevant and existing legislation. Any failure to comply with the applicable rules will constitute a breach.