Singapore's central bank and regulator has issued further advice to potential investors in Initial Coin Offerings.

Singapore's regulator and its commercial affairs watchdog has warned investors to conduct thorough due diligence before participating in Initial Coin Offerings (ICOs), a week after the city-state said it would look to regulate these controversial fundraisers. 

“Members of the public are advised to exercise due diligence to understand the risks associated with ICOs and investment schemes involving digital tokens,” the Monetary Authority of Singapore and the Commercial Affairs Department said in a statement. 

The warning comes just weeks after the US' most prominent regulator, the Securities and Exchange Commission, took aim at ICOs and said it would subject them to the same regulations as traditional securities sales. 

ICOs have gained momentum in recent years as digital currency entrepreneurs increasingly use them to raise millions quickly by creating and selling digital tokens with no regulatory oversight. It has been said that because many tokens are listed and traded on crypto-currency exchanges, large holders could gain more price-controlling powers. Some ICOs have faced criticism as they failed to accurately disclose token distribution, such as what proportion of tokens would be held by founders.

In its most recent note, the MAS penned a list of risks for prospective ICO investors to be aware of, building on its comments made last week that ICOs are “vulnerable to money laundering and terrorist finance due to the anonymous nature of the transactions”. 

The regulator says investors are “exposed to a heightened risk of fraud” when investing in “schemes [ICOs]” outside of Singapore, as it is difficult to verify authenticity and harder to recover money in the event of a scam. 

Because most ICOs are conducted by start-ups, the “failure rate tends to be high,” the MAS said, cautioning investors not to fall victim to false promises of sky-high returns on investments. “Consumers should be wary of investment schemes involving digital tokens that promise high returns,” the MAS said. “The higher the promised returns, the higher the risks.”

Regardless of turning a profit, investors may struggle to even sell their tokens, the MAS says, claiming there is often not enough appetite from buyers. “In the worst case scenario where no secondary market develops, a consumer may not be able to liquidate his token holdings at all,” the MAS said. The watchdog notes that token exchanges may not regulated and are therefore more susceptible to fraud. 

The MAS has also weighed in on the valuation of digital tokens, suggesting that this is “usually not transparent, and highly speculative” and, as a result, investors could lose their entire investment and render digital tokens “worthless”.