The Jersey Financial Services Commission (JFSC) has issued a warning on the risk of initial coin offerings (ICOs) in an attempt to minimise risks in the financial system.
Referring to the risks of ICOs, JFSC said that the value of cryptocurrencies is highly volatile, and the nature of rights in ICOs is uncertain. It said that ICOs are mostly unregulated and operate with no or limited investor protection, thereby increasing the risk of fraud.
The watchdog further said that investors may find difficult to exit such investments as the tokens may not be able to be traded for traditional / fiat currencies. The regulator also highlighted that the technology used by the digital tokens may not have been tested that makes the tokens susceptible to failure or theft.
“Anybody thinking of investing in an ICO should ensure that they carefully consider the risks above and how they relate to the offer. Potential investors should be sufficiently experienced and knowledgeable, confident in the quality of the ICO project itself (e.g. business plan, technology, people involved) and be prepared to lose their entire stake,” JFSC said.
The warning by the Jersey regulator joins the likes of several other regulators who have cracked down on ICOs in the past. In September 2017, Chinese regulators and South Korea’s Financial Services Commission (FSC) banned raising money through ICOs, while Securities and Futures Commission (SFC) of Hong Kong issued warning on ICOs. In the same month, JPMorgan CEO Jamie Dimon called bitcoin a ‘fraud’.
Previously, UK’s Financial Conduct Authority, US Securities and Exchange Commission, have also issued warning on ICOs.