ESMA warns investors and firms on dangers of ICOs

ESMA has become the latest body to denounce initial coin offerings (ICOs), issuing statements directed at investors and firms highlighting the distinct risks involved. Echoing FCA’s previous warnings , ESMA has focused on the risks of investors to losing all their invested capital, and firms conducting ICOs potentially also carrying on regulated investment activities.

Investors are warned once again on the volatility in the value of cryptocurrencies, the dangers of investing in an unregulated space (vulnerable to fraud), and the high risk of losing all capital invested. Firms involved in ICOs are reminded of the need to comply with  (at least) the following EU legislation:

  • Prospectus Directive;
  • MiFID;
  • AIFMD; and
  • MLD4.

ESMA says this legislation is “likely to apply” in relation to ICOs, but also that “depending on how they are structured, ICOs may fall outside of the scope of the existing rules and hence outside of the regulated space.”