A new circular issued by a financial regulator in the United Arab Emirates (UAE) warns investors on the potential risks they may face if they choose to invest in initial coin offerings (ICOs).

The document, issued by the country’s Securities and Commodities Authority (SCA), warns potential investors that ICOs aren’t regulated, and projects could be presented in an unaudited or misleading manner. Adding to that, a token’s price can be highly volatile once it starts trading on secondary markets.

The financial watchdog further pointed out that investing in overseas ICOs can entail even greater risk, as they are subject to the foreign jurisdiction’s laws. This can make it harder to track and recover funds in case something goes wrong with the organization behind the token sale.

Finally, investors can be tricked as to what they’re exactly buying. Per the SCA, available ICO information may be incomplete, effectively misleading them. The document reads:

“ICO information made available to investors may be unaudited or incomplete and may present a given investment case in an unbalanced and misleading manner (by emphasizing the potential benefits while overlooking risks, for example).”

UAE's Securities and Commodities Authroity

The authority moved to remind investors that they’ll be investing in ICOs at their own risk, as it does not regulate nor recognize any “digital, token-based fundraising activities or investment schemes.”

The UAE’s regulator seemingly shares others regulators’ stance toward ICOs: to warn investors on their risks and clarify they’re “on their own.” Some countries, including China and South Korea, even banned the fundraising practice to protect consumer losses.

As a whole regulators seem to dislike ICOs but refrain from banning them.The regulator’s dilemma is how to not stifle innovation whilst protecting consumers. Most regulators have taken the education and awareness approach as opposed to the heavy handed bans in South Korea and China.

Fortunately many jurisdictions are encouraging the development  cryptocurrencies and blockchain technology. Cryptocurrency trading is regulated in a few countries, while bitcoin is legal tender in Japan since April 2017. Recently, Saudi Arabia revealed it is considering cryptocurrency regulations, and that a ban was unlikely.