South Korea’s financial authorities announced Friday a ban on initial coin offerings (ICOs), following China’s moves earlier this month to halt a growing but unregulated form of fundraising using cryptocurrencies.

The Financial Services Commission (FSC) also warned that trading in virtual currencies needs to be tightly regulated, just a week after South Korea overtook China to become the world’s third biggest bitcoin market.

ICOs are fundraising schemes that work in a similar way to crowdfunding. Mostly initiated by tech startups developing blockchain technology, investors use a cryptocurrency (e.g. bitcoin) to invest in the startup, receiving a blockchain-based coin unique to the ICO in return.

A statement by the FSC said "raising funds through ICOs seem to be on the rise globally, and our assessment is that ICOs are increasing in South Korea as well." The statement was released after a meeting between senior officials from relevant ministries, with Yonhap quoting the FSC’s vice chairman Kim Yong-beom as saying,"There is a situation where money has been flooded into an unproductive and speculative direction."

China’s ban on ICOs announced earlier this month came after fears that the unregulated online fundraising was being used to commit fraud and financial crime. According to Reuters, South Korean authorities also cited the increasing risk of financial scams as a factor behind the latest ban, promising that there would be "stern penalties" for any company illegally involved with ICOs.

Seoul’s move to stop ICOs comes amid growing unease among authorities when it comes to cryptocurrencies and financial crime. Yonhap reported earlier this week that police had reason to believe that the DPRK was behind a series of cyber-attacks on four local bitcoin exchanges, sending emails containing malware to staff at the cryptocurrency platforms.

On Thursday, Australia’s Securities and Investments Commission warned "ICOs are highly speculative investments, are mostly unregulated and the chance of losing your investment is high," adding that consumers should understand the risks involved before investing. This came after a similar warning from the UK on September 12.

Australia in August announced proposals to move cryptocurrency exchanges under the remit of its financial crime watchdog.

While the lack of regulation over ICOs and cryptocurrency trading is becoming a growing concern worldwide, the potential benefits of more regulated blockchain-based technology are being recognized. The China Academy of Information and Communications Technology (CAICT), a research institution under the Ministry of Industry and Information Technology, on September 19 launched a research center focusing on blockchain technology.

The show of support for blockchain and fintech suggests that the recent spate of announced closures at some of China’s biggest trading platforms could be a temporary measure, as authorities look to work with industry experts to figure out how to regulate the technology while still recognizing its potential.

Japan officially legalized bitcoin in April and is combining its support of cryptocurrencies with greater regulations. Authorities in Tokyo have said "any bitcoin or ‘alternative coin’ exchange or money transfer business" must come under the supervision of the Japan Financial Services Agency by October 1.