The latest warning on initial coin offerings (ICOs) comes from the European Securities and Markets Authority

Lynsey Barber
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Raising cash via token sales is attracting the attention if financial watchdogs (Source: Getty)

Regulators in Europe are the latest to signal the alarm on initial coin offerings (ICOs) following a string of warnings from around the globe.

The European Securities and Markets Authority (ESMA) has issued a warning to investors over the risks while also issuing guidance to firms over what rules they must follow if they are pursuing one.

Read more: Credit Suisse's ex-digital chief is doing an ICO to fund a new startup

The trend for raising cash for startups via an ICO, or token sale, is booming, though there is little test yet of their success, or what rules they fall under.

ESMA has warned of extreme volatility in the price of the tokens and that "investors may not be able to redeem them for a prolonged period". It also signalled that some ICOs could fall outside of EU laws leaving investors without protections they might otherwise expect. "ICOs are also vulnerable to the risk of fraud or money laundering," it added.

Read more: The "Wolf of Wall Street" fraudster thinks ICOs are a scam

For firms, the watchdog said ICOs would most likely fall under rules for "regulated investment activities" that would mean rules such as Mifid II, the prospectus directive and anti-money laundering would apply.

Regulators in China, the US and the UK have also signalled caution on ICOs, which collectively have raised several billions of dollars to date.

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