The Hong Kong Securities and Futures Commission (SFC) has issued another alert regarding the risks of investing in initial coin offerings (ICOs) and dealing with cryptocurrency exchanges. Last fall, the SFC fired a shot across the bow of ICO issuers stating certain ICOs may be deemed securities and thus fall under existing securities laws. Today, the SFC has taken this warning a step further by taking regulatory action against a number of cryptocurrency exchanges and issuers of ICOs.
The SFC said it has sent letters to seven cryptocurrency exchanges in Hong Kong OR with connections to Hong Kong telling them not to trade in digital currencies which are securities as defined under existing securities law. In terms of daily trading volume, a number of cryptocurrency exchanges in Hong Kong or which have connections with Hong Kong rank in the top 20 globally, according to the SFC so this is a big deal.
The SFC stated that “most” of these exchanges either confirmed they did not provide such services or “took immediate rectification measures, including removing relevant cryptocurrencies from their platforms.”
The SFC said it is ready to take additional action if necessary if an exchange ignores their warnings.
Without mentioning the names of the token offerings, the SFC said it has also written to seven ICO issuers.
Again, the SFC said “most” confirmed compliance or, alternatively, immediately stopped offering tokens to Hong Kong investors.
The SFC said it would closely monitor all ICOs and will not tolerate the flouting of Hong Kong law.
“We will continue to police the market and enforce when necessary,” said Ashley Alder, the SFC’s Chief Executive Officer. “But we are also urging market professionals to do proper gatekeeping to prevent frauds or dubious fundraising and to assist us in ensuring compliance with the law.”
The regulator shared they have received investor complaints that some purchasers have not been able to withdraw either digital currency nor fiat currency from certain accounts. Some of these complaints included claims of outright fraud, misappropriation of funds, market manipulation and shabby technology that caused significant losses.
Julia Leung, the SFC’s Executive Director of Intermediaries, said that investors can not fully understand the risk of investing in ICOs and cryptocurrencies in general, the should not do it as they are at risk of significant loss.
“Investors who store their fiat currencies and cryptocurrencies with unregulated cryptocurrency exchanges should be aware of the risks of hacking and misappropriation of assets.”
In line with recent hacks globally, the SFC said that in a digital environment it can be hard to pursue action against fraudsters or unlicensed exchanges.
The SFC is open to referring cases of fraud to the police for investigation.