The Capital Markets Authority has cautioned Kenyans on the
dangers of participating in initial cryptocurrency coin offerings (ICOs)
citing high risk of exposure to fraud.
The CMA is the
second financial regulator after the Central Bank of Kenya (CBK) to
issue caution against cryptocurrencies, reminding investors that they
have no fall-back in case of loss since neither regulator has oversight
on the Internet-based digital currencies.
The capital
markets regulator’s warning comes at a time when a local group is
selling a Kenyan developed digital currency known as Nurucoin, which the
CMA has not approved.
The CMA says that its caution
is based on the wider risks in coin offerings identified by the
International Organisation of Securities Commissions (IOSCO) — of which
it is a member — that include potential for fraud, cross-border
distribution risks, information asymmetry on the risks, costs and
returns and liquidity risks when one wants to exit the investment.
“There
are ongoing invitations to members of the public to invest in such
coins in what is being marketed as ‘pre-sale before the launch on public
exchanges’,” said CMA in a notice published Tuesday.
“While
some ICOs are floated by entrepreneurs with genuine and innovative
ideas for new products and services, there is a risk that some issuers
could seek to perpetrate fraud against investors. Most ICOs operate
solely over the Internet, and the fact that the products and sellers may
not be subject to regulation exposes investors to fraud.”
CMA’s
warning is seen as a reaction to Kenya’s Nurucoin, which is managed by
owners of e-commerce platform BlazeBay, a subsidiary of Churchblaze
Christian Association which runs a number of technology and social
networking platforms.
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