FCMC alerts investors about a new financial investment service – Initial Coin Offering (ICO) and associated risks

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The Financial and Capital Market Commission (FCMC) alerts investors about a new financial investment service – Initial Coin Offering (ICO) and associated risks

Initial Coin Offering (ICO) definition

The term Initial Coin Offering (ICO) refers to a new means of raising money from the public, using a cryptocurrency (virtual currency), so-called “coins” or “tokens”. A token is a voucher, which depending on characteristics assigned to it, represents a virtual currency, security or any other claim on the issuer. Tokens or virtual currencies are only virtual and they are not regarded as traditional money or securities, namely, they are falling outside of the customer protection scheme of any State. ICOs are sometimes referred to as ‘initial token offering’ or ‘token sale’. 


Usually ICO issuers accept a cryptocurrency, in order to exchange it for a proprietary “coin” or “token” that is related to a specific firm or project, depending on the ICO structure. Please note that ICOs vary widely in design. The digitally issued token may be issued to represent a share in a firm, a prepayment for any future services. Please note that a firm or a project has no real obligation to repay the investment and often ICO projects are in a very early stage of development and on some occasions the project or company is not viable. FCMC draws attention to the potential risks associated with investments in ICO. 


The coins or tokens are created and disseminated using distributed ledger or blockchain technology. Their features vary widely across ICOs. Some may serve to access or buy a service or product that is to be developed by the issuing venture using the proceeds of the sale. Other may provide a share in its future revenues. Unlike IPOs, they do not usually provide ownership rights, although some may provide voting rights. Some coins or tokens are traded and/or may be exchanged into fiat or virtual currencies at specialised coin exchanges after issuance.  

FCMC alerts

ICOs are very high-risk and speculative investments. ICOs might be structured in a way, that makes them fall outside of the regulated space, in which case investors do not benefit from the protection that comes with regulated investments, and the main risk is to lose the entire investment. Moreover, ICOs are vulnerable to fraud or illicit activities, such as money laundering, owing to their anonymity and their capacity to raise large amounts of money in a short timeframe.

FCMC will assess each ICO model separately, because of the different ICO structures and in some cases, tokens may correspond to the financial instruments definition according to the Law of the Financial Instruments Market (LFIM), thus in particular situations the LFIM requirements could be applicable to such tokens.  

Investors should be conscious of all the risks involved and fully research the specific project when deciding to buy digital tokens. Before making a decision on participating in ICO transactions, FCMC recommends performing a detailed examination of the project. Investors should only invest in an ICO project if they are experienced investors, confident in the quality of the ICO project itself (e.g. business plan, technology, people involved), if such information is available. Investors should be aware of the possibility of losing all of their investments at any stage of the project.

The European Securities and Markets Authority (ESMA) is also alerting investors to the high risks of the ICOs: https://www.esma.europa.eu/press-news/esma-news/esma-highlights-ico-risks-investors-and-firms 

Main risks

No regulation applicable: Most ICOs are not regulated; many are operating on a cross-border basis. Nevertheless, particular ICO projects are required to obtain authorization for making a public offering or provision of investment services in accordance with the LFIM requirements. 

No investor/deposit protection: neither Investor Protection Law, nor Deposit Guarantee Law applies to unregulated ICOs.  

High risk of losing all of the invested capital: ICOs are launched by businesses that are at a very early stage of development, with no adequate coin or token value calculation. There is no guarantee that the business will be successful, nor are there guarantees of returning the investment back.

Price volatility: price of tokens, the same as of cryptocurrencies may be very volatile, with no adequate reasoning behind the changes.

Risk of fraud: Some issuers might not have the intention to use the funds raised in the way set out when the project was marketed.

White paper: ICO usually provides only white paper information that according to its nature and purpose is comparable to an issue prospectus, but does not comply with the regulatory requirements for relevant prospectus. Information set out in the white paper can be misleading and it may contain not all the relevant information that would be necessary for the customer to take a prudent and informed decision. High level technical expertise is required to understand and evaluate the nature of token and associated risks.

Misleading marketing: False and misleading advertising may be disseminated during the ICO that in aggressive way can highlight information on potential income of the token, not mentioning all the high risks. 




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