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Regulators on Both Sides of the Pond Looking More Closely at Cryptocurrency Offerings

by Thomas Ressler

With cryptocurrencies like Bitcoin blowing through the roof and blockchain technology captivating the public and private sectors alike, regulators in the US and in Europe are closely eyeballing what are known as Initial Coin Offerings, or ICOs, for their potential risks to investors. During a recent symposium in New York City on cybersecurity and financial crimes, US Securities and Exchange Commission Chairman Jay Clayton indicated the agency would take action against coin offering issuers that neither register with the SEC nor comply with applicable federal laws.

Earlier this year, the SEC started up a unit focusing on cyber-related misconduct, such as violations involving distributed ledger technology and ICOs. The concern that US regulators have is that because ICOs are an unregulated method of raising capital, compared with an initial public offering, there is the potential for significant fraud and abuse.

Elsewhere, the European Securities and Markets Authority recently said it has observed a rapid growth in ICOs globally and in Europe and is concerned that investors may be unaware of the substantial risks associated with investing in them. “ESMA is alerting investors of the high risk of losing all of their invested capital as ICOs are very risky and highly speculative investments,” ESMA said. “The price of the coin or token is typically extremely volatile and investors may not be able to redeem them for a prolonged period.”

Additionally, the ESMA is worried that firms involved in ICOs might not comply with the relevant EU laws. “Another key risk stems from the fact that, depending on how they are structured, ICOs may fall outside of the scope of EU laws and regulations, in which case investors cannot benefit from the protection that these laws and regulations provide,” it said. “ICOs are also vulnerable to the risk of fraud or money laundering.”

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