Article form https://medium.com/fortysevenblog
Forty Seven, first to voice support to German banking regulator’s recommendations on ICOs, urges all fintech industry to follow
Forty Seven is the first to voice support to German banking regulator’s recommendations on ICOs
On 9th of November, German Federal Financial Supervisory Authority (BaFin) issued a note about various risks of participating in Initial Coin Offerings.
We’ve studied the note carefully and were happily surprised. BaFin provides a well-balanced narrative of the real and, importantly, perceived issues related to ICO. The regulator acknowledges the risks connected with investing in ICO projects, but it also accepts the fact that this new type of crowdfunding/investment mechanism is already here and that people are willingly using it. BaFin understands that there is no reason to deny what’s happening, but it is their duty to give the guidance of how to act.
It is like approach of traffic police — so much familiar to us — driving is dangerous in principle, it has some risks, but it’s the way things happen — people drive cars in traffic. Besides, most of the risks can be reduced almost to zero if traffic participants would drive carefully, using some rules or recommendations — the ones BaFin provides.
That is a very reasonable position and we totally accept it.
Forty Seven banking ICO project is unique in the market since — for the time being — it is we and only us who provide the most objective and true to facts picture of the market, regulatory environment, our business model, financial projection and timeline of events. Those are the values we stand for.
We hope very soon our approach of ‘Radical Truth’ will become the industry standard. In the un-balanced world like ours, it is our duty to make it sustainable. We value our backers and the protection of their investments is our top priority. Everything we build is designed to be transparent, safe and secure. And profit-making, of course!
We call upon all the “crypto banks” and fintech ventures that have already completed their ICO or just announce their plans to do so, to join our Initiative for Responsible Fintech Economy (IRFE). Let us create a community of virtual financial organisations that value their investors’ interests above all — as Forty Seven has been doing since the very start.
All good CEOs of fintech companies! Let us share BaFin’s official note and inform our existing and potential backers about approach of this reputable regulator to investing in ICO projects.
We plan to organise a public platform for IFRE soon. Please follow our news.
Dear backers, below you can find a quoted BaFin’s note “Consumer warning: the risks of initial coin offerings”. Please read it carefully before you decide.
Consumer warning: the risks of initial coin offerings
Date: 09.11.2017
BaFin wishes to point out that the acquisition of cryptocurrency coins — also referred to as tokens, depending on their form — as part of so-called “initial coin offerings” (ICOs) may result in substantial risks for investors. ICOs are a highly speculative form of investment. Investors should therefore be prepared for the possibility of losing their investment completely. As is the case with most new trends, the high level of public interest in ICOs is also attracting fraudsters.
The term “initial coin offering” stems from that of “initial public offering” (IPO), i.e. a floatation on a stock exchange. The apparent similarity of the terms gives the impression that ICOs are comparable to the issuance of shares — this is not the case from either a technical or legal standpoint.
Numerous risks
Tokens acquired in an ICO often experience significant price fluctuations. There is a risk of there being no liquid secondary market or no secondary market at all where the investor can sell the tokens acquired in order to liquidate the investment at a profit.
Typically, projects financed using ICOs are still in their very early, in most cases experimental, stages and therefore their performance and business models have never been tested. Additionally, it is difficult for the investor to verify the descriptions of how the tokens function based on the underlying program code (smart contract) outlined in the accompanying white papers or terms and conditions. The code might also prove vulnerable to attack and manipulation.
Furthermore, the information stated by providers is often insufficient: in contrast to regulated prospectuses, the documentation provided by the white papers and terms and conditions is often objectively insufficient, incomprehensible or even misleading. Due to the lack of legal requirements and transparency rules, the consumer is left on their own when it comes to verifying the identity, reputability and credit standing of the token provider and understanding and assessing the investment on offer. It can also not be guaranteed that personal data will be protected in accordance with German standards.
The systemic vulnerability of ICOs to fraud, money laundering and terrorist financing increases the risk of investors losing the sums invested, all the more so due to the possibility of authorities taking necessary measures against operators or other persons or enterprises that are involved in such illegal dealings.
Notes for consumers
Before any consumer decides to participate in an ICO, they should make certain that they have fully understood the benefits and risks of the project or investment. They should also ask the issuer as many questions as necessary and verify the issuer’s information from independent sources. Moreover, investors should ensure that the characteristics of the project or investment match both their investment needs and their appetite for risk. More detailed information on ICOs and their risks will be published in BaFinJournal on 15 November. An English translation will be made available here. BaFin provides further notes on blockchain technology and virtual currencies under the menu item Company start-ups and fintech companies on its website. In addition, the websites of many other national supervisory authorities and that of the European Securities and Markets Authority (ESMA) also provide information and warnings about this topic.
