Hong Kongâs Securities and Futures Fee (SFC) lately printed an advisory paper that acknowledged NFTs as âcollective funding schemesâ fairly than collectibles.
The popularity brings NFTs underneath the SFCâs jurisdiction. The regulator considers NFTs extremely dangerous investments that require a particular kind of license.
The letter acknowledged the character of NFTs and their present trajectory to grow to be an funding software much like securities. The letter acknowledged:
âThe SFC has lately famous NFTs [âŚ] structured in a kind much like âsecuritiesâ [âŚ], or specifically, pursuits in a âcollective funding schemeâ (CIS)â
This shift in direction of turning into an funding software subjected NFTs underneath the SFCâs jurisdiction. With the brand new strategy, 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 donât have any management over the administration of the property and take part in searching 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 further.
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 embrace 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 contains detailed steering 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 personal shoppers.
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, nonetheless, SFC nonetheless considers NFTs as notably dangerous. The current letter warns NFT traders as they’re susceptible to dropping income attributable to illiquid secondary markets, worth volatility, opaque pricing, hacking, and fraud.