Hong Kong’s Securities and Futures Fee (SFC) just lately printed an advisory paper that acknowledged NFTs as “collective funding schemes” quite than collectibles.
The popularity brings NFTs underneath the SFC’s jurisdiction. The regulator considers NFTs extremely dangerous investments that require a particular sort of license.
The letter acknowledged the character of NFTs and their present trajectory to change into an funding device just like securities. The letter acknowledged:
“The SFC has just lately famous NFTs […] structured in a type just like “securities” […], or particularly, pursuits in a ‘collective funding scheme’ (CIS)”
This shift in direction of changing into an funding device subjected NFTs underneath the SFC’s jurisdiction. With the brand new method, for any NFT that constitutes an curiosity in a CIS, advertising and marketing, or distributing, NFT requires particular SFC licensing.
Collective funding scheme
SFC defines collective funding schemes as schemes that contain an association in respect of property managed as an entire; the contributors don’t have any management over the administration of the property and take part in looking for monetary returns.
By this definition, all NFT collections launched in Hong Kong or goal Hong Kong traders fall underneath the definition of CIS and, subsequently, would require licensing any longer.
Hong Kong regulatory framework
The SFC and the Hong Kong Financial Authority (HKMA) collectively issued the 2022 Crypto Regulation Round on January 28, 2022. The Round features a definition of digital property and addresses points round virtual-asset-related merchandise.
Digital asset merchandise embody all property that both have an funding goal, derive their worth from digital property, or replicate funding returns that correspond to that of digital property.
The Round additionally consists of detailed steerage for organizations who plan on distributing or coping with digital property. Every enterprise should get hold of a particular license relying on its goal buyer phase, whether or not it’s skilled traders or non-public purchasers.
Dangers of NFTs
SFC considers NFTs as a digital asset-related product, as they replicate funding returns that correspond to that of digital property.
With that, nevertheless, SFC nonetheless considers NFTs as notably dangerous. The latest letter warns NFT traders as they’re susceptible to shedding income on account of illiquid secondary markets, value volatility, opaque pricing, hacking, and fraud.
