SFC warns of NFT risks! Securities and fundraising are subject to regulation

Non-fungible tokens (NFTs) have been popular all over the world since 2021. Celebrities and brands from all walks of life have participated in the carnival feast of digital collectibles. In this regard, the Hong Kong Securities and Futures Commission (SFC) released on June 6 The announcement reminds investors to pay attention to the risks associated with NFTs.

The Hong Kong Securities and Futures Commission pointed out that NFTs, like other virtual assets, face higher risks, including lack of liquidity in the secondary market, price volatility, lack of transparency in pricing, and the risk of hacking and fraud, and reminded investors that they should be aware of these The existence of risks, such as failure to fully understand NFTs or to withstand potential losses, should not invest in such assets.

The announcement mentioned that if an NFT is a collectible that truly exists in digital form, the activities related to it do not fall within the scope of the Hong Kong Securities and Futures Commission’s supervision.

However, the SFC has recently noticed that some NFTs straddle the line between “collectibles” and “financial assets”, such as subdivision or Homogenized NFTs.

A “collective investment scheme” generally consists of four elements, namely: it involves arrangements for the property; the participants have no day-to-day control over the management of the property; the property as a whole is owned by or on behalf of the person operating the arrangement Administered by persons, or the contributions of the participants and the profits or proceeds paid to them are pooled; and the purpose or effect of the arrangement is to enable the participants to share in, or receive, the profits derived from the acquisition or management of such property , earnings or other returns.

The SFC pointed out that once an NFT constitutes an interest under a “collective investment scheme”, the promotion or distribution of NFT may constitute a “regulated activity”, and under the current regulations, whether in Hong Kong or targeting Hong Kong investors , anyone who wants to carry on a “regulated activity” must obtain a license from the Securities and Futures Commission unless exempted.

In addition, the SFC also stated that if the arrangement related to NFT involves an offer to the Hong Kong public to participate in a collective investment scheme, it may also trigger the recognition requirements under the Securities and Futures Ordinance.

In fact, the Hong Kong Securities Regulatory Commission’s reminder seems to echo the Chinese authorities ‘ argument that “de-financialization” is the premise to conditionally open up NFT transactions.

At present, in China, if you simply mint and issue NFTs, and let the public collect them in the form of virtual artworks, these behaviors are allowed, and in order to draw a clear line with cryptocurrencies, most Chinese companies, including Tencent, choose to use ” “Digital collectibles” and other words, and the resale transactions of NFTs are not allowed, the purpose is to weaken the financial attributes of NFTs.