KUALA LUMPUR (Sept 7): The Securities Commission Malaysia (SC) reminds the public of the investment risks in cryptocurrency or digital token-based fundraising or investment schemes, which have emerged both in Malaysia and elsewhere.

The regulator said investors should “fully understand” and “weigh the risk” on such investments.

The fundraising exercise, commonly known as initial coin offering (ICO) — a term that closely resembles initial public offering (IPO) — entails investors to pay for the issuance and sale of said tokens, usually via better-known cryptocurrencies such as Bitcoin or Ethereum.

Other names for the ICO include initial token offerings, token pre-sale, and token crowd-sale, among others, said SC in a statement today.

It warned investors on the potential risks involved in the ICO fundraising schemes, which can be structured in different forms.

“As the terms and features of ICO schemes may differ in each case, investors who wish to engage or invest in ICO schemes are reminded to seek legal or other professional advice if there are doubts on the legitimacy of these schemes,” the statement said.

The structure of the fundraising include, among others, direct investments in projects, where token holders have rights to a project’s returns, as well as foundation-based funding where investors can enjoy rights to future products or services developed by the ICO scheme operator.

SC said some operators have no presence in Malaysia, making it difficult to verify the authenticity of the ICO. “The recovery of invested monies may be subject to foreign laws or regulations.

“Some ICO schemes and the parties involved operate online and may not be regulated [so] investors may be exposed to heightened risks of fraud, money laundering and terrorism financing,” it said.

The structure of these ICO schemes might also limit the legal protection and recourse for investors against scheme operators, said the SC, adding that digital tokens traded on a secondary market “may give rise to risks of insufficient liquidity or volatile and opaque pricing”.

“Investors should be aware that ICO scheme operators issues a white paper, which typically contains descriptions of the ICO scheme but may also carry disclaimers which absolve the operators from certain responsibilities and obligations,” it said.