Hong Kong classifies NFTs as financial asset, mandates licensing

Hong Kong’s Securities and Futures Commission (SFC) precocious published an advisory insubstantial that recognized NFTs arsenic “collective concern schemes” alternatively than collectibles.

The designation brings NFTs nether the SFC’s jurisdiction. The regulator considers NFTs highly risky investments that necessitate a circumstantial benignant of license.

The missive recognized the quality of NFTs and their existent trajectory to go an concern instrumentality akin to securities. The missive stated:

“The SFC has precocious noted NFTs […] structured successful a signifier akin to “securities” […], oregon successful particular, interests successful a ‘collective concern scheme’ (CIS)”

This displacement towards becoming an concern instrumentality subjected NFTs nether the SFC’s jurisdiction. With the caller approach, for immoderate NFT that constitutes an involvement successful a CIS, marketing, oregon distributing, NFT requires circumstantial SFC licensing.

Collective concern scheme

SFC defines corporate concern schemes arsenic schemes that impact an statement successful respect of spot managed arsenic a whole; the participants don’t person immoderate power implicit the absorption of the spot and enactment successful seeking fiscal returns.

By this definition, each NFT collections released successful Hong Kong oregon people Hong Kong investors autumn nether the explanation of CIS and, therefore, volition necessitate licensing from present on.

Hong Kong regulatory framework

The SFC and the Hong Kong Monetary Authority (HKMA) jointly issued the 2022 Crypto Regulation Circular connected January 28, 2022. The Circular includes a explanation of virtual assets and addresses issues astir virtual-asset-related products.

Virtual plus products see each assets that either person an concern objective, deduce their worth from virtual assets,  oregon replicate concern returns that correspond to that of virtual assets.

The Circular besides includes elaborate guidance for organizations who program connected distributing oregon dealing with virtual assets. Each concern indispensable get a circumstantial licence depending connected its people lawsuit segment, whether it is nonrecreational investors oregon backstage clients.

Risks of NFTs

SFC considers NFTs arsenic a virtual asset-related product, arsenic they replicate concern returns that correspond to that of virtual assets.

With that, however, SFC inactive considers NFTs arsenic peculiarly risky. The caller missive warns NFT investors arsenic they are prone to losing gross owed to illiquid secondary markets, terms volatility, opaque pricing, hacking, and fraud.

The station Hong Kong classifies NFTs arsenic fiscal asset, mandates licensing appeared archetypal connected CryptoSlate.