The European Securities and Markets Authority (ESMA) these days warned two separate statements that outline what it perceives as the risks initial coin offerings pose for investors and startups.
A warning tone on the future state of the market, ESMA warned investors that the use of custom cryptocurrencies for fundraising comes with a high risk of capital loss. In addition to that, the government warned that ICOs may fall outside of EU laws and regulations, which in turn does not bring benefit to investors.
ICOs are also vulnerable to the risk of hacking or money laundering.
The markets watchdog's second statement stressed that startups or open-source projects involved in ICOs are at risk of conducting regulated investment activities without observing applicable EU legislation, including its prospectus directive, the fourth anti-money laundering directive, and other laws.
Firms involved in ICOs need to give "careful consideration" to these activities, it warned, as failure to comply with EU rules would be considered a breach.
The news notably follows other recent ICO warnings including the Japanese FSA's statement to investors on ICO risks, and another from Germany's Federal Financial Supervisory Authority, which said: "Investors should be wary of the 'numerous risks' involved in token sales."