Japan’s financial regulator has published a notice warning users of the risks associated with ICO investments.
Japan’s Financial Services Agency (FSA), the country’s financial regulator and watchdog, published a statement centered on initial coin offerings on October 27 for both users participating in ICOs and businesses offering them.
For users, the statement underlined the “high risks” surrounding initial coin offerings, specifically – volatility of the tokens issued and the likelihood of fraud by ICO operators. “The price of a token may decline or become worthless suddenly,” the FSA said in its warning. “[T]here are possibilities that the projects in the [white]paper are not implemented, or the goods and services planned are not offered in reality,” the statement added, putting a spotlight on the potential for fraud in the sector. “Frauds taking advantage of ICOs are reported in the media.”
The regulator added:
You should have a deal [invest] at your own risk only after understanding enough the risks [as explained] and the content of an ICO project if you buy a token. You should also pay careful attention to suspicious solicitation on ICOs.
China’s blanket ban on ICOs has seen an exodus of startups looking to list tokens in neighboring Japan, a friendlier jurisdiction for cryptocurrencies where bitcoin officially gained recognition as a legal method of payment earlier this year. “We are receiving hundreds of requests from Chinese startups and startups around the world, asking us to list their tokens after the Chinese government banned ICOs,” revealed Japanese exchange Coincheck’s head of international business development Kagayaki Kawabata om a media interview earlier this month.
For startups and businesses launching token sales, the FSA’s statement stressed “ICOs may fall within the scope of the Payment Services Act and/or the Financial Instruments and Exchange Act depending on how they are structured.” ICO operators and businesses launching a token sale are required to adhere to related laws and regulations including registration of token sales, the absence of which leaves them subject to criminal penalties.
Tokens that are categorized under the Payment Services Act will also mandate exchanges supporting these tokens to be registered with their local finance bureaus. Similarly, if an ICO has characteristics similar to that of an investment wherein “The purchase of a token by a virtual currency is practically deemed equivalent of that by a legal tender,” the token sale will have to operate under the regulations of the Financial Instruments and Exchange Act.
Japan’s FSA, which established a 30-member team to specifically carry out surveillance of cryptocurrency exchanges in the country, bestowed special licenses for 11 bitcoin exchanges to legally operate in the country last month.