The Securities and Futures Commission (SFC) of Hong Kong has issued a public statement to alert investors and operators of virtual asset trading platforms (VATPs) about the legal and regulatory risks involved in trading virtual assets.
The SFC warns that any person who operates a VATP in Hong Kong, or targets Hong Kong investors, without a license or authorization from the SFC may be committing a criminal offence under the Securities and Futures Ordinance (SFO).
According to the SFC, virtual assets are likely to be “securities” as defined in the SFO if they have features of traditional securities, such as shares, debentures or collective investment schemes. The SFC also considers that virtual assets may be “futures contracts” if they are standardized contracts or arrangements for the purchase or sale of a specified quantity of a commodity or financial instrument at an agreed price and time.
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Therefore, any person who carries on a business in dealing in, advising on, or providing automated trading services for such virtual assets must be licensed by or registered with the SFC, unless an exemption applies.
The SFC notes that some VATPs may attempt to operate in jurisdictions where there is no or less stringent regulation of virtual assets. However, this does not exempt them from the licensing and regulatory requirements under the SFO if they target Hong Kong investors or have a nexus with Hong Kong.
The SFC urges investors to exercise caution and due diligence when dealing with VATPs, especially those operating overseas or using offshore entities to avoid regulatory scrutiny. Investors should also be aware of the risks of hacking, fraud, misappropriation of assets, market manipulation, and volatility associated with trading virtual assets.
In a recent statement, the Securities and Futures Commission (SFC) of Hong Kong clarified its position on the regulation of virtual assets, such as cryptocurrencies and tokens. The SFC explained that virtual assets may fall under the definition of “securities” in the Securities and Futures Ordinance (SFO) if they possess characteristics of traditional securities, such as shares, debentures, or collective investment schemes.
This means that virtual asset service providers, such as exchanges, brokers, or fund managers, may be subject to the SFC’s licensing and supervision requirements if they deal with virtual assets that are securities in Hong Kong.
The SFC also warned investors of the risks and challenges associated with investing in virtual assets, such as volatility, hacking, fraud, and lack of transparency. The SFC’s statement is part of its ongoing efforts to protect investors and promote market integrity in the fast-growing and evolving virtual asset sector.
The SFC states that it will continue to monitor the development and activities of VATPs in Hong Kong and overseas and will take appropriate enforcement action against unlicensed or unauthorized VATPs to protect the interests of investors and the integrity of the market.
The SFC’s statement is an important reminder for virtual asset service providers to assess whether their activities involve virtual assets that are securities and to comply with the relevant regulatory obligations. The SFC has indicated that it will continue to monitor the development of the virtual asset market and take appropriate enforcement actions against any misconduct or breaches of the law.