CySEC announcement regarding the risks of investing in Initial Coin Offerings

Further to its advice issued in October 2017 regarding investment in virtual currencies and related products the Cyprus Securities and Exchange Commission (“CySEC”) has issued a further announcement drawing attention to statements issued by the European Securities and Markets Authority on 13 November 2017 on the risks of investing in Initial Coin Offerings (“ICOs”), addressed respectively to potential investors in ICOs and to investment firms involved in ICOs.
The statement for investors highlights the significant risks involved in investing in ICOs, including vulnerability to fraud or illicit activities, due to the fact that ICOs might not fall within the scope of regulation, the high risk of losing all of the invested capital, the limited exit options and extreme price volatility, inadequacy of information and flaws in the technological infrastructure underlying cryptocurrencies.
The statement for firms points out that, depending on how they are structured, ICOs may fall within the scope of the existing EU legislation and that firms involved in ICOs should carefully consider whether their activities constitute regulated activities, in which case they will need to comply with all the relevant legislation, including the Prospectus Directive, the Markets in Financial Instruments Directive, the Alternative Investment Fund Managers Directive and the Anti-Money Laundering Directive.