Hong Kong’s Securities and Futures Commission on Monday warned that digital tokens and initial coin offerings (ICOs) could be involved in unauthorized collective investment schemes (CIS) and urged investors to exercise extreme caution.
Fast facts
- The SFC’s warning comes as the regulator added two property-related CIS investment projects and the “LABS Security Token” to its Suspected Unauthorized CIS Alert List on the same day. The LABS token, issued by the LABS Group, allows for fractional investments into real estate projects.
- According to a SFC news release, CIS — or investment products of a collective nature — offered to the public in Hong Kong are subject to the SFC’s authorization, unless exempted. CIS must be sold by an intermediary licensed or registered with the SFC and it would be an offense to market or distribute CIS investments without the SFC’s license or registration.
- While the SFC allows for unauthorized CIS to be sold to professional investors — or individuals having a portfolio of not less than HK$8 million (US$1.03 million) — it has warned investors to be extremely careful if they plan to invest in any non-SFC authorized CIS and to do their own due diligence.
- “Unauthorized investment arrangements are highly risky and investors may lose all their investments,” said Christina Choi, the SFC’s executive director of investment products. “Investors are urged to check the new alert list and find out whether the arrangement is authorized by the SFC before investing.”
- The SFC has been taking an active regulatory stance toward digital assets. In July, the regulator warned that Binance — the world’s largest cryptocurrency exchange by trading volume — was not allowed to conduct “regulated activity” in the city, specifically trading in stock tokens. Binance has since ceased support for stock tokens and wound down its derivatives product offering for customers from Hong Kong.
- Hong Kong has one of the clearest and most detailed requirements for licensing of virtual asset service providers (VASPs) of any jurisdiction in Asia. A more comprehensive licensing regime for VASPs, which include cryptocurrency exchanges, is expected to be introduced in the coming fall session of the Legislative Council. One of the new rules to be passed includes limiting cryptocurrency trading to professional investors.