Japanese Financial Regulator Issues Warning on ICOs

While many people consider initial coin offerings to be high-risk investments, the rewards are often worth it for investors throughout the world. However, ICOs remain an unregulated market, and recently, Japan’s Financial Services Agency (FSA) warned of the risks posed by these crowdfunding campaigns.

Price volatility and fraud potential

The agency commented that the potential for fraud as well as price volatility are danger factors faced by investors in ICOs, but also mentioned that they could be regulated under either the country’s Payment Services Act or the Financial Instruments and Exchange Act.

In a recent press statement, the FSA noted:

You should have a deal at your own risk only after understanding enough the risks as above and the content of an ICO project if you buy a token. You should also pay careful attention to suspicious solicitation on ICOs.

The regulator also issued a warning for companies holding ICOs, stating that they should thoroughly fulfill their duties, especially in the context of the acts mentioned earlier. The FSA continued:

A certain token issued in an ICO falls under the virtual currency on the Payment Services Act, therefore the businesses which provide exchange services of virtual currencies on a regular basis must be registered with each Local Finance Bureau that is delegated authority to by the Prime Minister.

To be subject to regulation under the Financial Instruments and Exchange Act, an ICO would need to have the characteristics associated with an investment. Additionally, according to the agency, the purchase of digital currency tokens can be deemed equivalent to that of legal tender. Some fear that these statements may foretell stricter regulation in the future.

Based on these points, is ICO regulation needed from your point of view, in Japan and elsewhere? Let us know in the comment section.

  • ICO regulation should be centered on ensuring that statements in the offering or prospectus are truthful and that contract terms are fulfilled, then stand aside and let the market do its work.