Hong Kong Regulator Issues Statement on ICOs
Hong Kong’s Securities and Futures Commission (SFC) has issued a statement on existing regulations which could be applicable to initial coin offerings (ICO). The SFC states that digital tokens that comprise securities are subject to the securities laws of Hong Kong.
The statement came one day after China’s central bank banned ICOs out of concerns over financial risks and stability.
The Hong Kong financial regulator defines the tokens issued through ICOs as either comprising virtual commodities, securities, shares, debentures, or an interest in a collective investment scheme (CIS). The SFC states that tokens that fall under the definition of securities in accordance with the Securitites and Futures Ordinance are subject to the securities laws of Hong Kong. The SFC also notes that shares, debentures, and interests in a CIS are all regarded as securities.
The SFC said that all companies that issue securities through ICOs to citizens of Hong Kong are required to register with the SFC. The SFC added that tokens that offer ownership rights to a start-up, dividend rights, or own a debt to their owner will all qualify as a security and be subject to local equity laws. Similarly, if a startup that raises cash through an ICO pools the funds to “invest in projects with an aim to enable token holders to participate in a share of the returns provided by the project,” then it will also be subject to local securities laws.
“We are concerned about an increase in the use of ICOs to raise funds in Hong Kong and elsewhere,” said SFC executive director of intermediaries Julia Leung,. “Those involved in an ICO need to be aware that some ICO structures may be subject to Hong Kong securities laws.”
The Hong Kong financial regulator urges investors to be mindful of potential scams, as well as the investment risks involved in ICOs. As ICOs operate online and may not have a presence in Hong Kong, investors may be exposed to heightened risks of fraud.
