Hong Kong treats some NFTs as financial assets and imposes regulations

Hong Kong distinguishes 2 categories of non-fungible tokens (NFT)

Hong Kong seems determined to regulate the non-fungible token (NFT) industry. In a press release published on Monday, June 6, 2022, the Securities and Futures Commission (SFC), the country’s financial policeman, distinguishes two categories of digital assets certified on the blockchain.

According to the SFC, most of the NFTs on the market are destined “to represent a single copy of an underlying asset such as a digital image, work of art, music or video”. In this case, the digital works are beyond the control of the organization.

On the other hand, the finance police believe it the second category of NFT enters his “Regulatory jurisdiction”. These are non-fungible tokens that are located on the border “between collector’s item and financial asset”. The regulatory body ensures that some tokens are “Structured in a form similar to financial securities” as part of a “Collective investment scheme”.

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Regulations for the sale of NFT

Clearly, the SFC appears to be targeting NFTs whose goal is to finance a project and who allow them to receive benefits. In this case, the organization recalls that regulations have been put in place in Hong Kong. Companies offering digital assets of this type must apply for a license from the SFC. This also applies to overseas-based companies targeting Hong Kong-based investors.

The financial policeman also ensures that the NFT market exposes investors “increased risks, including volatility, opaque pricing, hacking and fraud”. The SFC recommends that investors be aware of the risks inherent in the non-fungible token industry before embarking on.

A very weak time with cryptocurrencies, Hong Kong has gradually strengthened its position in recent years. Regulators have begun to do this increase monitoring of trading platforms of cryptocurrencies and to impose strict rules for trading. Despite the measures adopted, the regulations in force in the country remain particularly vague, which complicates the development of specialized companies.

Against this backdrop, Binance was forced to abandon its derivatives offering in Hong Kong territory. Many companies have then moved their activities to other countries, such as Singapore or the Bahamas. This is particularly the case with FTX, which moved its headquarters to the Bahamas last year.

Source: SFC

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About the author: Florian Bayard

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