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SLOVENIA and other countries warn on the risks of cryptocurrencies

posted onOctober 10, 2017
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Slovenia’s Financial Stability Board (FSB), the country's financial watchdog issued a warning on Monday (Oct.9) advising consumers to be mindful of potential risks of cryptocurrencies -such as bitcoin. The FSB, which is headed by the Bank of Slovenia Governor Bostjan Jazbec, said digital currencies are not regulated and are not guaranteed by the Bank of Slovenia or any other government entity. The watchdog noted the warning was issued amid increased interest of the public in virtual currencies, particularly as an investment opportunity.

“Investors in virtual currencies … have to take into consideration whether risks are in line with their personal preferences and investment goals,” the board said in a statement.

The FSB also cautioned about initial coin offerings (ICOs) which aren’t regulated and controlled. The statement said investors in ICOs should invest “in the amount that would not leave them too exposed”. ICOs have been used by digital currency entrepreneurs around the world to raise large sums quickly by creating and selling digital “tokens” which have no regulatory oversight.

In recent months, warning voices have grown louder as cryptocurrencies, which are normally issued by private companies and exist only in electronic form, have attained record valuations. The price of bitcoin has soared this year, from $969 to more than $5,000 in September; rival Ethereum began the year at $8 and has traded as high as $400.

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Regulators across the world, including the U.S., Singapore, Hong Kong and UK, have warned that lack of regulations has turned ICOs into a playground for scammers. China’s Central Bank was the first to outlaw ICOs, in a move made in September and South Korea's Financial Services Commission (FSC) followed suit.

The Chinese central bank stated that ICOs are "essentially a non-approved illegal open financing behavior, suspected of illegal sale Tokens, illegal securities issuance and illegal fund-raising, financial fraud, pyramid schemes and other criminal activities." In addition, the regulator claimed that ICO events have caused "market chaos." China has followed the ICO ban with a country-wide ban of cryptocurrency exchanges.

In September, Russia's central bank issued its own statement on the risks of cryptocurrencies and ICOs. The statement noted the "high risks" of exchanging cryptocurrencies, as well as participation in ICOs (described as "a form of attracting citizens' investments").

European Central Bank President Mario Draghi criticized a proposal by the Estonian government to launch 'estcoin' a state-managed digital currency. “No member state can introduce its own currency.” Draghi said in answer to a question during a press conference. “The currency of the euro zone is the euro.” he added.

Abu Dhabi’s Financial Services Regulatory Authority (FSRA), issued on the same day with Slovenia a warning about ICOs and cryptocurrencies. According to a news report in CNBC, under the new guidelines, companies that wish to launch an ICO must first check with the FSRA to see if it will fall under the watchdog’s regulation. Companies will also be required to publish a prospectus similar to companies looking to sell stock via an initial public offering (IPO) . In addition, any market intermediaries, or secondary market operators dealing with ICOs must be approved by the FSRA. The FSRA also warned about the risks of unregulated ICOs.

Slovenia’s Financial Stability Board is responsible for implementing macro prudential policy that would protect the stability of Slovenia’s financial system. Jazbec, also sits on the European Central Bank’s governing council.