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The Hong Kong Securities and Futures Commission (SFC) has said that NFTs (non-fungible tokens) can be regulated if they are fractionalised or structured in a way similar to securities or interests, particularly in the category of “collective investment schemes”.
According to the SFC, a collective investment scheme (CIS) includes projects that enable participants to receive profits, income or other returns, without them having day-to-day control over the management of the assets.
Where an NFT constitutes an interest in a CIS, marketing or distributing it may constitute a “regulated activity”. Parties carrying out these activities, whether in Hong Kong or targeting Hong Kong investors, will require a licence from the SFC unless an exemption applies, the SFC said.
“As with other virtual assets, NFTs are exposed to heightened risks including illiquid secondary markets, volatility, opaque pricing, hacking and fraud,” the SFC warned. “Investors should be mindful of these risks, and if they cannot fully understand them and bear the potential losses, they should not invest in NFTs.”
Last year, Hong Kong proposed a regulatory framework governing virtual asset service providers with a licensing regime which will be overseen by the SFC.
A similar stance on NFTs has already been adopted by Singapore.
Earlier this year, Senior Minister of Singapore Tharman Shanmugaratnam warned that investments in non-fungible tokens (NFTs) are not suitable for retail investors. He also noted that NFTs could be subject to MAS (Monetary Authority of Singapore) regulatory requirements if they have the characteristics of capital markets products under the Securities and Futures ACT (SFA).