FCA ICO warning
ICOs are mostly unregulated and still unprovenREUTERS/Benoit Tessier/Illustration/File Photo

Britain's financial markets watchdog has warned investors about the dangers associated with initial coin offerings (ICOs). Concerned with this booming method of fundraising, the UK's Financial Conduct Authority (FCA) said that investors should keep a tab on the risks involved with ICOs and research each project before investing their funds into it.

"ICOs are very high-risk, speculative investments," the organisation said in a statement issued on Tuesday (September 12).

ICO investments, also known as token sales, are a faster method of fundraising which involve young startups offering new virtual currencies in exchange for legal tender or other cryptocurrencies, such as bitcoin, from the public.

The investment sector has seen a boom this year with more than $1.5bn (£1.1bn) being raised through ICOs for different early-stage projects across the world.

However, these coin offerings are mostly unregulated and still unproven, and can draw a large number of potential scammers.

Hefty investments through ICOs could lead to illicit activities and frauds in which "issuers might not have the intention to use the funds raised in the way that was first set out when the project was marketed."

"You should be conscious of the risks involved and fully research the specific project if you are thinking about buying digital tokens," the FCA wrote in its warning. "You should only invest in an ICO project if you are an experienced investor, confident in the quality of the ICO project itself and prepared to lose your entire stake."

The regulator also noted the value of coins issued under ICOs is vulnerable to dramatic changes and that investors will have little or no UK regulatory protection policies like the Financial Services Compensation Scheme or the Financial Ombudsman Service.

The warning from the FCA comes as several countries continue their crackdown against the fundraising method.

China banned ICOs last week, saying it was necessary to stop illegal fundraising, while the US Securities and Exchange Commission said token sales might violate security laws and issued an investor alert in July to flag the potential risks from ICOs.

Regulators in South Korea, Singapore and Hong Kong have also voiced their concerns about the growth of ICO fundraising.