The International Organization of Securities Commissions (IOSCO) has released an advisory document to warn potential investors about participating in initial coin offerings (ICOs).

IOSCO, which is a consortium of multiple regulatory authorities from all over the world, released the document from its headquarters in Madrid, Spain. The organization comprises of regulatory bodies the likes of the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority, and the Japanese Financial Service Agency.

In its advisory release, the IOSCO addresses concerns surrounding ICOs, the latest financial phenomenon that has garnered the interest of seasoned and green investors alike.

Most of the time, legitimate startups and even established companies run an ICO to back their business and have the financial resources they need to develop their vision. After being completed, these ICOs start delivering on what they initially said, which of course is beneficial for the investors and consumers alike.

However, the overwhelming interest from potential investors about any ICO that is announced also brings the genuine possibility of malicious people creating intricate schemes to make as much money as possible without having any intention of launching the proposed business.

All that these malicious parties have to do is to set up a few online properties and start their ICO (while typically being based in a country where regulations are scarce), and people immediately begin investing by buying said company’s native tokens – the value of which is only derived through the company itself along with speculative influence – which in turn means that these companies practically have to invest little to no capital to gain a significant amount of funds in terms of investment.

Some of these false companies disappear after completing the ICO, or if the investors are lucky, get apprehended by authorities. Nonetheless, the investors have their funds stuck with them for quite a while, and that is what the authorities want to stop.

The reasons above have inspired these global authorities to issue this brief yet collective advisory release so that more people could be aware of such issues.

What does the advisory release say?

Addressing the issues mentioned above, the document explains how ICOs are not standardized and how their legal and regulatory standing varies on a case to case basis.

It then mentions that investors are putting their whole investment capital at risk by investing in unregulated ICOs. The document explains that some of such ICOs are typically based in different jurisdictions than the investor, which increases the dangers against investor protection.

It tells the investors about the possibility of fraudulent ICOs, and asks them to “be very careful in deciding whether to invest in ICOs.”

The document also refers to a collective meeting of the global members of IOSCO, in which these offerings were discussed at length. It explains that most of its members have already issued multiple notices and advisories to potential investors to warn them about the risks involved with this new mode of investment.

The document concludes by directing readers to those multiple warnings for further information and education on the subject.

The IOSCO also announced the establishment of its ICO Consultation Network, which is going to provide a platform to its member authorities to discuss pertaining points regularly.

Does this hold any significance?

Since it comes from an organization holding notable regulatory authorities from all over the world, it does mean that ICOs and the risks involved with them are being noticed on a global scale.

While the information provided is not new, it certainly holds facts and something which investors need to think about before they invest in a potentially risky ICO.

This does not mean that all ICOs are ridden with fraud, however. As stated above, there have been numerous startups and established companies that have ran their ICOs in the past and have then gone on to establish themselves in legitimate operations.

As with anything else, ICOs are prone to manipulation by harmful actors, and thus it falls upon the investors to practice constant vigilance to keep themselves and their funds safe from such risks.