In a new statement published on its website, the FCA warned, however, that it does not regulate most ICOs, with many based overseas, and that United Kingdom consumers are "extremely unlikely to have access to United Kingdom regulatory protections like the Financial Services Compensation Scheme or the Financial Ombudsman Service" should they choose to invest in such schemes.
On Tuesday, the United Kingdom watchdog shone a light on the largely unregulated ICO space, calling the investments "very high-risk" and "speculative".
Regulators in other countries including Canada and the U.S. have issued their own notices to highlight the potential risks involved with ICOs, including the possibility that the projects are linked to illegal schemes or fraud.
Last week, the People's Bank of China banned blockchain startups raising funds via ICOs.
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ICOs, also known as token sales, have brought in an estimated $1.7 billion in crypto token investment for companies this year, but the boom has raised concern among financial regulators for the potential for scams, money laundering and other illicit activities.
Initial coin offering issuers accept a cryptocurrency, like Bitcoin or Ether, in exchange for another one related to a specific firm or project.
It said: "Many ICOs will fall outside the regulated space".
The regulator notes some ICOs feature parallels with IPOs, private placements, crowdfunding and even collective investment schemes.
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In a warning to businesses involved with an ICO, the FCA warns that they must consider whether their activities amount to regulated activities. As a result, investors are "extremely unlikely" to have the safety net of United Kingdom regulatory protections.
"In addition, digital currency exchanges that facilitate the exchange of certain tokens should consider if they need to be authorized by the FCA to be able to deliver their services".
The FCA said the digital token may represent a share in a firm, a prepayment voucher for future services or it may have no discernible value at all.
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