A financial regulator in the United Arab Emirates has issued a warning to residents on the risk of initial coin offerings (ICO).

Issued on Feb. 4 by the Securities and Commodities Authority (SCA), the circular alerts residents in the country to be aware of the risk of investing in token-based fundraising activities such as ICOs and token pre-sales.

The risks, as stated out by the SCA, could stem from both the project being presented in an unaudited or misleading manner, as well as highly volatile price fluctuations after a token starts trading on a secondary market.

The SCA further highlights that, since the agency doesn’t currently regulate or supervise any ICO projects, no legal protection can be provided to investors in a case of fraud.

In addition, the agency warns that investing in overseas ICO projects may also prove to be risky, depending on whether or not the market is formally regulated.

The SCA states:

“ICOs may be issued abroad, and therefore are subject to foreign laws and regulations that can be difficult to verify. Tracking and recovering funds in case of ICO collapse may prove to be extremely difficult in practice.”

With the circular, the authority becomes the latest among worldwide financial regulators to have formally issued warnings to residents on ICO investment risks.

The alert also follows the country’s capital city government, which in October last year revealed guidance that seeks to apply anti-money laundry and know-your-customer rules to ICO projects.

UAE flag image via Shutterstock