- The agency’s main concern lies in the securitization of NFTs
- Only licensed institutions can operate collective investment schemes
The Hong Kong Securities and Futures Commission (SFC) published a statement on Monday that defined which NFTs fall under its mandate, while advising investors to be mindful of regulated securities.
The statement warned of risks such as “illiquid secondary markets, volatility, opaque pricing, hacking and fraud,” and cautioned that if investors “cannot fully understand them and bear the potential losses, they should not invest in NFTs.”
The SFC is particularly concerned about assets that “push the boundary between a collectible and a financial asset” — those that are structured like a security or a collective investment scheme (CIS).
A CIS is a type of investment arrangement to pool money around a certain asset or property. The Hong Kong Securities and Futures Ordinance (SFO) specifies that a CIS is managed in escrow and its participants do not have day-to-day control over its management, but are subject to receive profits, income or other returns.
A recent example includes the fractionalization and security token offering, on the Polygon blockchain, of James Ensor’s 1924 painting Carnaval de Binche, by the Royal Museum of Fine Arts Antwerp.
While such fractionalized NFTs fall under the SFC’s mandate, NFTs of a digital image, artwork, music or video that represent a unique copy of an underlying asset do not.
The financial regulator stated that any Hong Kong residents who wish to issue NFTs or to target local investors must obtain a license from the SFC, or be subject to certain authorization requirements under the SFO.
Recently, Hong Kong also limited the sale of crypto spot ETFs to professional investors only, which it defined as those whose portfolio exceeds HKD$8 million (about US$1.2 million). And the Hong Kong Monetary Authority (HKMA) deemed “payments-related stablecoins” as a risk to financial stability.
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The post Hong Kong Securities and Futures Commission Calls for Regulation of NFTs appeared first on Blockworks.
