The Capital Markets Authority (CMA) has warned the public against an ongoing Initial Coin Offerings (ICOs) ‘pre-sale before launch’ going on in the country.
ICOs involve creation of digital tokens using distributed ledger technology and subsequent sale to investors.
“It is notified for general information that the CMA has not as of this date approved any Initial Coin offering. The ongoing offerings are unregulated and speculative investments, with considerable risk to the investor.
According to the International Organization of Securities Commissions, which Kenya is a member, the sale entails heightened potential for fraud since some issuers could seek to perpetrate fraud against investors. Most ICOs operate solely over the Internet – and the fad that the products and those selling them may in some cases not be subject to regulation, expose investors to fraud.
The trade also entails cross-border distribution risks, since the issuer may also be operating the ICO from outside the investor’s jurisdiction, following the money in the event of a collapse of the ICO as well as recovering invested funds, may prove extremely difficult in practice.
CMA also warns that there could be a lot of information asymmetry due to their complexity and the uncertainty around the rights or interests that an investor may be acquiring, many retail investors may not be able to understand the risks, costs and expected returns and/or the drivers of risks and returns, arising from their investment.
“This hampers their ability to make informed investment decisions, and increase the likelihood of adverse consumer outcomes,” notes CMA.
“Like crypto-currencies in general, tokens traded on virtual currency exchanges (or over-the-counter) may give rise to opaque and volatile pricing, often coupled with insufficient liquidity to support reliable trading and market-making activities. In some jurisdictions, the crypto-currency exchanges may also be unregulated and operate without oversight. This can leave investors vulnerable to dramatic price changes and the possibility that they may not be able to exit their holdings,” adds the authority
Yesterday, financial regulators in Malaysia banned ICOs and instead published guidelines for crypto initial exchange offerings (IEOs).
Malaysia now becomes one of the first jurisdictions to pursue regulated crypto token sales via registered exchange platforms.
Other countries have little on no regulation for cryptos.