ESMA Joins Fellow Regulators in Warning Against ICOs

The European Securities and Markets Authority and the Autoriteit Financiële Markten, the financial regulators of the EU and Holland respectively, have issued statements on the subject of initial coin offerings.

The sudden popularity of this new fundraising phenomenon has led many national regulatory authorities to worry that investors may jump into an investment without understanding that they could lose everything.


ESMA issued two statements, one meant for the investing public, and one for companies offering ICOs.

The European regulator informs the public that ICOs carry substantial risk. The inherent volatility of digital tokens means that investors cannot rely on turning a profit, and they may not even be able to put the tokens to use by exchanging them for actual money, be it digital or fiat.

It also points out the fact that ICOs often operate outside of the law, because adequate laws have not yet been written to cover the myriad uses of the tokens that are being sold. This means that investors are not protected.

In addition to this, a fundraising technique which is both unsupervised and of proven effectiveness is naturally a very attractive proposition for scammers. The fact that this is all based on technology which is still developing and little understood, and which is at its root decentralised and anonymous, only serves to sweeten the deal.

Information regarding ICOs, presented in documents known as ‘whitepapers’, is often incomplete, unaudited, and even misleading. ESMA advises European citizens to be wary.

In tandem with this, firms that conduct ICOs are warned that the onus is upon them to ensure that their activities are compliant with relevant and existing legislation, where it applies.

ICOs may be new-fangled, but the firms presenting them are still bound to provide adequate information to investors, refrain from financing terrorists and laundering money, and check if their ICO falls under MiFID laws: “ESMA stresses that firms involved in ICOs should give careful consideration as to whether their activities constitute regulated activities. Any failure to comply with the applicable rules will constitute a breach.”


The Dutch financial regulator has also advised investors not to invest in ICOs, for similar reasons to those listed by ESMA. AFM Chairman Merel van Vroonhoven said:

“Although the AFM sees the possibilities of blockchain technology for financial services, it points to the high risks of ICOs in the current hype. The high risk of scams and loss of intake combined with the hype around ICOs at the moment is a dangerous cocktail. In the media, more and more messages are coming about consumers who invest in ICOs with money intended for later or even heavily borrowed money. Abroad, several examples of fraudulent ICOs are already known, and the AFM is seriously concerned about the risk of misleading investors in the Netherlands. We therefore advise consumers not to invest in ICOs under current circumstances. ”

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