Hong Kong’s SFC to keep an eye on cryptocurrencies, ICOs

Maria Nikolova

“We keep a close watch on cryptocurrencies and initial coin offerings, intervening where appropriate”, the SFC says in its Annual Report 2017-18.

The Securities and Futures Commission (SFC) of Hong Kong has earlier today posted its Annual report 2017-18, underlining its commitment to investor protection.

The regulator stressed that new technologies provide convenience for investors but come with risks. “We keep a close watch on cryptocurrencies and initial coin offerings, intervening where appropriate”, the SFC said.

In light of significant investor interest in cryptocurrencies and the use of initial coin offerings (ICOs) to raise funds in Hong Kong, the SFC notes that it took regulatory action against a number of cryptocurrency exchanges and ICO issuers and issued two statements alerting investors to their potential risks. The regulator says it will remain vigilant in policing the market and monitor the latest developments.

Let’s recall that in February this year, the SFC said it had sent letters to seven cryptocurrency exchanges in Hong Kong or with connections to Hong Kong. In the letters, the regulator warns the exchanges that they should not trade cryptocurrencies which are “securities” as defined in the Securities and Futures Ordinance (SFO) without a licence.

The SFC said back then it had also written to seven ICO issuers. Most of them confirmed compliance with the SFC’s regulatory regime or immediately stopped offering tokens to Hong Kong investors.

The action was taken as investors had complained to the SFC that they were unable to withdraw fiat currencies or cryptocurrencies from their accounts opened with cryptocurrency exchanges. Some complainants claimed that cryptocurrency exchanges had misappropriated their assets or manipulated the market, or that technical breakdowns of the exchanges’ platforms caused them significant losses. Several complaints against ICO issuers alleged unlicensed or fraudulent activities.

Subsequently, in March 2018, an issuer halted its ICO to the Hong Kong public and agreed to unwind ICO transactions for Hong Kong investors.

The SFC is, however, embracing new technology. To facilitate the use of innovative technology in delivering financial services, the SFC regulatory sandbox was launched in September 2017 to enable qualified firms to conduct regulated activities under some licensing conditions. To qualify, a firm must either be a licensed corporation or a start-up firm which intends to carry on a regulated activity. It must be fit and proper, utilise innovative technologies and be able to demonstrate a genuine and serious commitment to carry on regulated activities through the use of financial technologies.

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