Japan’s financial watchdog named price volatility, potential for fraud and lack of regulatory oversight as potential threats to the burgeoning ICO industry, reminding investors that scams are rampant and that the practice is still unregulated.
The FSA’s move follows similar warnings in the United States, Singapore, Canada and the UK and comes a few weeks after Chinese authorities issued an all-out ban on them. The regulator is concerned that ICOs could be marketed to inexperienced investors who may seek exposure without carefully weighing the risks.
In a recent investor alert, the market watchdog warned that fraudsters could be using the lure of emerging assets to convince potential victims to invest their money in “the projects in the paper that are not implemented, or the goods and services planned are not offered in reality”.
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According to Japan’s Financial Services Agency (FSA), the risks of initial coin offerings, or ICOs, take a number of forms that depend on whether you are a buyer of digital tokens or the entity that issues the virtual asset.
The FSA added: “You should have a deal at your own risk only after understanding enough the risks as above and the content of an ICO project if you buy a token. You should also pay careful attention to suspicious solicitation on ICOs. If you have any questions, visit our contact point page and contact us by email.”
Concerning the businesses that issue the virtual tokens, the announcement from the FSA did not explicitly ban its practices, only warned that some types of offerings were likely to face regulatory scrutiny depending on how they are structured.
It stressed that certain ICOs falls under the Payment Services Act, therefore the businesses which provide exchange services of virtual currencies on a regular basis must be registered with the competent Local Finance Bureau.