Bermuda’s financial-services regulator has warned that unregulated initial coin offerings have no investor protection.

The Bermuda Monetary Authority said many ICOs — the name given to launches of new cryptocurrencies or tokens — fell outside its regulatory boundaries.

“At this time, these forms of investment vehicles are not subject to prudential regulation, which among other things requires regulated entities to hold sufficient capital and have adequate risk controls in place,” the BMA stated.

“The BMA encourages the investing public to be prudent and mindful of their accountability for their actions in this increasingly fast-moving and complex landscape.”

The BMA’s statement comes against a backdrop of growing cryptocurrency activity on the island.

The Bermuda Government has launched a cryptocurrency initiative is under the direction of Wayne Caines, Minister of National Security. A two-pronged task force was announced in November, with one team exploring business development opportunities, and the other dealing with legal and regulatory matters.

Last week, the sports gaming site FaceOff announced that its new token iCash would be launched through a Bermuda company. This after another token for an e-sports start-up was launched through Unikrn Bermuda Ltd in October last year.

And Horizon, a company planning to launch a wireless internet service on the island, is aiming to raise capital through a crowdsale of its HRZN utility tokens, set to start on January 22.

The BMA stressed that regulated financial-services companies have made a commitment to adhere to market codes of practice and transparency, but “these codes do not apply to an unregulated ICO”.

Whether ICOs could be regulated by the BMA could be decided only on a case-by-case basis, the BMA said, but many ICOs were unregulated because there were “no requirements with which they have to comply at this time”.

It added that many ICOs were related to early-stage projects with experimental business models, while instead of a regulated prospectus, prospective investors were presented with a “white paper”.

Jeremy Cox, chief executive officer of the BMA, said: “Today’s fast-paced global digital business environment needs to be accommodated for Bermuda to remain economically sound.

“Sometimes there may appear to be a contradiction between this fast forward new world and the BMA’s mandate to ensure that investors and other stakeholders can operate in a climate of confidence.

“Bermuda’s financial services industry has benefited from its reputation as a highly regulated jurisdiction and we continue to strive for global standards.

“We will not falter in this duty to safeguard the public and other stakeholders, but we are aware that the regulator’s role is not to stand in the way of progress.”

Mr Cox added that while the BMA can create a regulatory framework that enables new business ideas, potential investors also need to take their responsibilities seriously.

“Disruptive technology”, while playing an important role in the evolution of the financial-services industry did not, by its very newness, have a proven, longer-term track record, he added.