Japanese Financial Services Agency (FSA) has highlighted the risks associated with initial coin offerings (ICOs) and outlined how they may fall within the scope of the Payment Services Act and/or the Financial Instruments and Exchange Act.

According to the agency, price volatility and potential for fraud are the risks a user faces when dedaling the digital tokens issued in the ICO.

“You should have a deal at your own risk only after understanding enough the risks as above and the content of an ICO project if you buy a token. You should also pay careful attention to suspicious solicitation on ICOs,” the FSA said.

It further said that businesses involved in an ICO should fulfil their duties when their services fall under the scope of the Payment Services Act and/or theFinancial Instruments and Exchange Act. The FSA explained:

“A certain token issued in an ICO falls under the virtual currency on the Payment Services Act, therefore the businesses which provide exchange services of virtual currencies on a regular basis must be registered with each Local Finance Bureau that is delegated authority to by the Prime Minister.

“If an ICO has the characteristics of an investment and the purchase of a token by a virtual currency is practically deemed equivalent of that by a legal tender, the ICO becomes subject to regulations under the Financial Instruments and Exchange Act.”