Malaysia Warns Investors of ICO Risks

Blockchain, Investing, News, Regulation | September 11, 2017 By:

The Securities Commission of Malaysia (SC), the regulatory authority that oversees and enforces financial regulation in the country, has issued a warning on the potential risk of initial coin offerings (ICO).

The regulator noted that while all ICO operators seek to raise funds from investors, these plans can be structured in many forms, which may include direct investments in projects with an aim to enable token holders to participate in a share of the returns from the projects, seeking funding through foundations where investors are not entitled to seek any returns on their investments; and issuance of tokens which entitle the investors to enjoy rights to a future product or service generated by the project managed by the operator.

The SC said that investors should take note that ICO operators may not have a presence in Malaysia. Hence, it would be difficult to verify the authenticity of the plan and the recovery of foreign-invested monies may be subject to foreign laws or regulations

The regulalor also added that since some of the ICO plans operate online and may not be regulated, investors may be exposed to heightened risks of fraud, money laundering and terrorism financing. Digital tokens traded on a secondary market may also give rise to risks of insufficient liquidity or volatile and opaque pricing.

The commission said that investors should seek legal or professional advice and fully understand the features of an ICO plan before investing in it. Investors should also be aware that ICO plan operators issue a whitepaper, which typically contains descriptions of the ICO, but may also carry disclaimers which absolve the operators from certain responsibilities and obligations.

The statement follows a wave of countries issuing similar warnings against ICOs. The US Securities and Exchange Commission was the first to release a statement saying that it would regulate tokens that qualify as securities under the Howey Test, which determines whether transactions qualify as “investment contracts.”

Last week, the People’s Bank of China banned blockchain startups raising funds via ICOs. The Hong Kong Securities and Futures Commission (SFC) quickly followed issuing their own notice urging investors to be mindful of potential scams.