The Jersey Financial Services Commission has issued a statement on the risks posed to investors engaging in ICOs. The regulator’s warning follows similar concerns from the likes of the UK, Germany, Canada, although avoids the hardline position adopted by the Chinese in September which sent the cryptocurrency markets into decline.
Specific Concerns Outlined
The JFSC have identified several areas that they consider as carrying potential “risk of financial loss to the investing public.” Among those listed were:
- Lack of clarity over rights including uncertainty over a contributor is entitled to receive from their investment
- Volatility with huge swings in the prices cryptocurrencies and digital assets can wipe out investments in seconds.
- Poorly regulated as many ICOs fly under the scope of regulation with contributors not receiving the same protections as traditional investments. Information presented may be misrepresented or inaccurate.
- Difficulty in backing out an investment into fiat currency again as not all ICOs achieve adequate exchange listing it.
- Technological shortcomings with new digital tokens are unlikely to be tested rigorously enough to guarantee their security. They may not function as intended, or be more vulnerable to appropriation.
Based on the above risks, the JFSC are urging extreme caution to anyone considering participation in ICOs. They further stated:
“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.”
The whole statement issued by the regulatory authority can be read here.