April 23, 2021 Investor warnings - News

Montréal - Amid the current speculative frenzy surrounding cryptocurrencies and other crypto assets, the Autorité des marchés financiers (the “AMF”) once again cautions Quebeckers about the inordinately high risks associated with them.

Initial cryptocurrency offerings, commonly referred to as ICOs (Initial coin offerings), are very risky, highly volatile investments that exist in an environment that makes them susceptible to manipulation and fraud.

Coins are created using readily accessible technology and are easily marketed on decentralized exchanges, without any third-party intervention or authorization. For example, many ICOs are launched on Ethereum, a decentralized blockchain that is open to everyone and whose use is unregulated. All it takes is a quick search of the Internet to find sites that explain how  to create coins and how to make them available in a just few minutes for trading on a blockchain.   

This situation is encouraging the proliferation of coins on the Internet whose promoters are luring investors by promising them huge returns on investment projects. Many of those coins are available from decentralized platforms, such as Uniswap, that operate without any human intervention.  Vigorous efforts are being made by the AMF and its cybersurveillance team to detect fraudulent projects at an early stage. However, the massive size of the Internet and the use of social networks, including instant messaging apps that allow the creation of private chat groups mean it is often impossible for regulators to intervene on a preventive basis.   

Remember: Individuals or companies that plan to raise capital through cyber assets must comply with the regulatory requirements applicable to securities and derivatives. Failing to do so could lead to prosecution or sanctions. The AMF is therefore asking those who are planning an ICO to find out about their legal obligations and make sure they comply with the applicable regulations.

Also, individuals or companies that operate platforms that trade crypto assets that are securities or derivatives, or trade contractual rights or claims to underlying crypto assets such as bitcoin or ether, are also subject to securities and derivatives regulations. Again, failing to comply with those regulations could lead to prosecution and sanctions.

The AMF urges the public—particularly young people, many of whom currently seem drawn to projects promising quick big profits—to exercise extreme caution when considering cryptocurrencies. Unfortunately, such projects often turn out to be scams or, at best, an inordinately risk investments.

The Autorité des marchés financiers is the regulatory and oversight body for Québec’s financial sector.

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