The Financial Market Authority (FMA), an integrated supervisory authority or the Austrian financial market, has issued a warning against with virtual currencies and virtual currency-based business models and investment products.

The regulator emphasized that virtual currencies such as bitcoin are currently not subject to any form of regulation, and in particular are not subject to supervision by the FMA.

“Consequently the risk of their misuse for criminal purposes, particularly with regard to fraud or breach of trust is therefore especially high, with any form of legal enforcement or enforcement of claims for damages sustained being particularly difficult or even impossible. The FMA therefore warns consumers to exercise the utmost caution in relation to virtual currencies”, it said.

With regard to business models or investment products based around cryptocurrencies, the FMA said that these products are designed in such a way that they are not subject to licence obligations, and therefore are not supervised. It noted that many of the schemes are based on similar “Multilevel Marketing Plans” (MMPs) in which every customer simultaneously acquires new customers and sellers, and receives a percentage of their sales on the basis of an elaborate system.

“There is the particular risk that such plans are fraudulent “snowball” schemes: in such cases pay-outs are made to early participants in the system from the money paid in by later participants, until the system collapses for purely mathematical and statistical reasons”, the FMA said, adding that alternatively, the system is a legally prohibited pyramid system.

The FMA advises consumers to exercise utmost caution when dealing with virtual currencies and related products. It urges users that prior to entering into any business relationship they should conduct Internet Research to establish whether warnings have already been published in relation to the provider in question.

“The legal assessment of whether a criminal offence is committed in connection with such business models does not fall under the FMA’s competence, but instead falls within the area of competence of the public prosecutor as well as the criminal courts. In the event that the FMA becomes aware of the existence of such cases giving rise to the suspicion of a criminal offence being committed, the FMA reports such occurrences to the Public Prosecutor’s Office in the form of a short statement of the known facts”, it said.

In addition, the FMA also listed the warnings issued by other regulators which include Financial Services and Markets Authority’s (FSMA) and Financial Conduct Authority’s (FCA) warning against OneCoin, and European Banking Authority’s (EBA) warning against virtual currencies and potential regulatory regime proposal.