Mexican authorities issue warning on ICOs

In a joint message, Mexico's central bank, finance ministry and bank regulator (CNBV) issued a warning to the public related to the risks associated with initial coin offerings (ICOs), a novel use of issuing cryptocurrencies to raise funds and finance projects.

"Certain ICOs, if applicable, originate and are issued in Mexico could violate the Securities Market Law and constitute a financial crime," read the statement, which specified the warning was preventative in nature and that - to the entities' knowledge - no such ICO had yet occurred from within Mexico.

Chief of among the risks is the highly volatile nature of virtual currencies, adding that without the backing of any financial or governmental authority their distribution and administration in Mexico would be illegal.

"Given their very nature, virtual assets have shown high volatility, since they are subject to broad speculative activity, so that it is essential to warn of the risks inherent to those who decide to use or invest in these assets," added the statement.

The authorities added the public must be warned that there is no "special legal regime for the resolution of disputes," adding to "the aforementioned absence of support" and the fact that "the people who administer and distribute them are not regulated, nor supervised by the authorities financial in our country."

In recent years, firms, and often startups, offer "tokens" tied to an eventual ICO, often tied to the Bitcoin or Ethereum networks to raise investment funds, trading essentially near valueless commodities for what could eventually trade with significant value with the company's success and the coin's adoption.

Depending on the financing scheme, the "tokens" can offer the right of access to operate on a platform to be developed, the acquisition of ownership of the new virtual assets, or even, represent the ownership of high-value assets (for example, gold or diamonds).

Likewise, there are "tokens" that offer certain rights over the project to be developed and part of the profits that it generates.

At the international level, various agencies and financial authorities are also concerned about the expansion of these kinds of schemes. While they agree there such schemes could be legitimate, their complexity and variety boosts the risks of fraud.

Penalties for the improper use of cryptocurrencies are set to be formalized via a current law proposal to regulate fintechs, which has received the senates' approval and is moving through the lower house.