European Union Releases Two Memorandums Concerning ICOs

European Securities and Markets Authority recently issued two warnings concerning initial coin offerings, one is for investors while the other one is geared towards firms that participated. The warnings were issued on the 13th of November, right after the preceding weekend that we saw a huge swing between prices, as well as digital currency volatility.

ESMA to Investors: Be more wary of ICOs

In an unsurprising turn of events following the whirlwind weekend that pushed the prices of Bitcoin, Bitcoin Cash, and Ethereum all over the place, the European Securities and Market Authority (ESMA) issued two same-day statements concerning ICOs.

Dated 13 November 2017, ESMA50-157-829 gives important attention to investors. “If you are considering investing in ICOs or have already done so, be aware of the many risks this may entail,” ESMA begins, “including the total loss of your investment. In particular, be aware that you will have no protection. ICOs are highly speculative investments and depending on how they are structured, may fall outside of the regulated space, in which case investors do not benefit from the protection,” they detail.

ICOs are still unregulated and should, therefore, be dealt with the necessary action immediately.

“ICOs are also vulnerable to fraud or illicit activities, owing to their anonymity and their capacity to raise large amounts of money in a short timeframe. Risks include the above along with money laundering, losing one’s entire capital, lack of exit options and price volatility, inadequate access to information, and fundamental flaws in early, untested technologies,” they further continue.

“Virtually anyone who has access to the Internet can participate in an ICO,” they point out, a clear indication of how risky the regulatory body sees the product.

The regulatory arm is one of the three European Supervisory Authorities within the European System of Financial Supervisors bureaucracy.

ESMA Warns Firms of ICO Dealings

ESMA50-157-828 however, starts on a much more serious note. Released the same day, ESMA argues “If their activities constitute a regulated activity, firms have to comply with the relevant legislation and any failure to comply with the applicable rules would constitute a breach,” urging the participating firms “to meet relevant regulatory requirements.”

Firms might be confused with this statement, as the same body refers to them as “unregulated” as well.

However, a bit of light may be shed in the following: “where the coins or tokens qualify as
financial instruments it is likely that the firms involved in ICOs conduct regulated investment activities, such as placing, dealing in or advising on financial instruments or managing or marketing collective investment schemes,” ESMA advises, which at first glance might seem vague in itself.

The statement then sent out basic guidelines for firms, including a description of start-ups with “necessary information which is material to an investor for making an informed assessment of the facts and that the information shall be presented in an easily analysable and comprehensible form,” ESMA advises, urging firms to be more critical of activities.

“Firms have an obligation to report any suspicious activity and to co-operate with any investigations by relevant public authorities,” they say, pushing the firms to be more transparent in dealings and overall structure of their companies. The memorandum also advises firms to strictly comply with anti-money laundering regulations and laws.