UAE’s financial regulator has issued a warning to residents on the risk of initial coin offerings (ICO).
The Securities and Commodities Authority (SCA) raised the alarm on February 4th about all digital, token-based fundraising activities or investment schemes in the UAE, whether referred to as ICOs, initial token offerings, token presale, or token crowdsale.
It explained that ICO terms and features are case-specific and so is the nature of rights and interests acquired by investors (if any), indicating that ICOs are highly speculative and highly volatile in terms of prices.
SCA urged investors to be fully aware of the risks associated with ICO investments, especially that some ICOs are not regulated and may be subject to fraud risks.
ICOs may be issued abroad, and therefore are subject to foreign laws and regulations that can be difficult to verify. Tracking and recovering funds in case of ICO collapse may prove to be extremely difficult in practice.
It also indicated that ICO trading on the secondary market is subject to opaque, volatile pricing and insufficient liquidity, and that many investors, especially retail, may not be able to understand the risks, costs, and expected returns arising from ICO investments.
Furthermore, another risk arises from the fact that ICO information available to investors may be unaudited or incomplete and may present an investment case in a misleading manner. An example would entail focusing on the benefits while overlooking the risks.
It is important to note that SCA reiterated that it does not recognize, regulate, or supervise any ICO presently and that ICO investments are not offered legal or regulatory protection. Investors involved in ICO investments are doing so at their own risk.
SCA called upon digital token issuers, intermediaries advising on or facilitating digital token offerings, and digital token trading platforms to seek legal and regulatory advice to ensure compliance with all the applicable laws and regulations.