As we have previously reported, regulators in Canada and Hong Kong have recently issued statements regarding initial coin offerings, or "ICOs." Now, Malaysia's securities regulatory body, the Securities Commission, has weighed in.

The Securities Commission's statement was directed at prospective digital token purchasers, cautioning them about "potential risks involved in ICO[] schemes." According to the Securities Commission, such risks include the difficulty in "verify[ing] the authenticity" of the ICO or in recovering money that may be subject to foreign laws, given that companies involved in ICOs may be located outside of Malaysia. Moreover, ICOs may operate online and be unregulated, thereby exposing token purchasers to "heightened risks of fraud, money laundering and terrorism financing."

The Securities Commission also cautioned that the "structure of these ICO schemes might limit the legal protection and recourse . . . against scheme operators." Finally, the Commission flagged the potential for "insufficient liquidity or volatile and opaque pricing" of digital tokens traded on the secondary markets. It encouraged potential token purchasers to be diligent and to ensure they understand the features of an ICO, to review the white paper and any disclaimers therein, and to consult legal counsel or other professionals should any doubts as to the legitimacy of an ICO arise. 

Unlike other regulators, the Securities Commission did not take a position in this statement on whether, in its view, ICOs involve securities. Instead, its goal was clearly to encourage potential token purchasers to inform themselves about ICOs before jumping in, particularly given the unique features and risks that some of these token sales may possess. Nevertheless, the Securities Commission's emphasis on the litany of potential risks relating to ICOs may cause potential digital token purchasers to think twice about buying tokens.  

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