Hong Kong Regulators Are Worried About ICOs

Hot on the heels of China’s coin offering ban, Hong Kong’s Securities and Futures Commission (SFC) has also expressed concern about these offerings.

In a statement, Julia Leung, the SFC’s Executive Director of Intermediaries, said that the regulator is “concerned about an increase in the use of ICOs to raise funds in Hong Kong and elsewhere,” adding that “those involved in an ICO need to be aware that some ICO structures may be subject to Hong Kong securities laws.”

Yep, while the Middle Kingdom’s decision to ban all token sales was due to a panoply of sketchy reasons, Hong Kong’s concerns are closer to – as TechCrunch notes – Singapore’s and the U.S.’, which is that coin offering participants may actually be in breach of securities laws.

Here’s the SFC’s take on the matter:

ICOs typically involve the issuance of digital tokens, created and disseminated using distributed ledger or blockchain technology. Whilst digital tokens offered in typical ICOs are usually characterised as a “virtual commodity”, the SFC has observed that certain ICOs have terms and features that may mean that the digital tokens are “securities”.

Where the digital tokens involved in an ICO fall under the definition of “securities”, dealing in or advising on such digital tokens, or managing or marketing a fund investing in them, may constitute a regulated activity. Parties engaging in a regulated activity targeting the Hong Kong public are required to be licensed by or registered with the SFC, irrespective of where they are located.

While it doesn’t seem geared for an imminent crackdown on token sales, the SFC does urge investors “to be mindful of potential scams” and conscious of the potentially higher risks involved in ICOs.

That said, having regulators voice out their ICO concerns does throw a monkey wrench in Hong Kong’s ICO market. TechCrunch points out that companies have already started excluding Singaporean and American citizens from investing in token sales, and seeing Hong Kong’s SFC voice its own worries, citizens of the former colony may soon be added to that list. Let’s see how it goes.

Photo: Mark Lehmkuhler