NFTs are classified as financial assets in Hong Kong, which also requires licencing.
In a recent advising paper, Hong Kong’s Securities and Futures Commission (SFC) acknowledged NFTs as “collective investment schemes” as opposed to collectibles. NFTs now fall under the SFC’s purview as a result of the recognition. The regulator views NFTs as extremely risky ventures that call for a particular kind of authorization. The letter acknowledged the characteristics of NFTs and their present course toward development into an investment tool comparable to securities. This transformation into an investment instrument brought NFTs under the SFC’s purview. The new strategy mandates particular SFC licencing for any NFT that represents a stake in a CIS, marketing, or distribution.
The SFC defines collective investment schemes as those that involve an arrangement in relation to property administered as a whole; participants seek financial rewards but have no say in how the property is managed. According to this definition, every NFT collection produced in Hong Kong or aimed at Hong Kong investors qualifies as CIS and will hereafter need to be licenced. On January 28, 2022, the SFC and the Hong Kong Monetary Authority (HKMA) jointly released the 2022 Crypto Regulation Circular. The Circular discusses concerns over items related to virtual assets and provides a definition of virtual assets. All assets that either have an investing goal, draw their value from virtual assets, or mimic investment returns that match those of virtual assets are considered virtual asset products. The Circular also offers comprehensive advice to businesses that want to distribute or work with virtual assets. Depending on whether professional investors or individual customers are their target market, each business is required to obtain a particular licence.
Despite this, SFC continues to view NFTs as particularly dangerous. The most recent letter warns NFT investors that they run the risk of losing money because of opaque pricing, hacking, fraud, volatile prices, and illiquid secondary markets.
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