Hong Kong Securities and Futures Commission Issues Statement Regarding ICO Regulations

Hong Kong’s Securities and Futures Commission (SFC) has issued a statement regarding ICO regulations. The SFC states that digital tokens that comprise securities are subject to the securities laws of Hong Kong.

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Hong Kong Will Adopt Western Styled ICO Regulations That Focus on Regulating the Distribution of Securities Through Token Sales

The Securities and Futures Commission defines the tokens issued through initial coin offerings as either comprising ‘virtual commodities’, ‘securities’, ‘shares’, ‘debentures’, or an interest in a ‘collective investment scheme (CIS)’. The SFC states that tokens that fall under the definition of ‘securities’ in accordance with the Securitites and Futures Ordinance are subject to the securities laws of Hong Kong. The SFC also notes that “shares, debentures, and interests in a CIS are all regarded as ‘securities’”.

All companies that issues securities through initial coin offerings to citizens of Hong Kong are required to register with the SFC. The SFC states that “where the digital tokens involved in an ICO fall under the definition of ‘securities’, dealing in or advising on the digital tokens, or managing or marketing a fund investing in such digital tokens, may constitute a ‘regulated activity’. Parties engaging in a “regulated activity” are required to be licensed by or registered with the SFC irrespective of whether the parties involved are located in Hong Kong, so long as such business activities target the Hong Kong public.”

The Securities and Futures Commission also states that “parties engaging in the secondary trading of such tokens (eg, on cryptocurrency exchanges) may also be subject to the SFC’s licensing and conduct requirements” – meaning that private traders will also be subject to the regulations.

The Cryptocurrency Community Is Speculating as to What the Ramifications of Hong Kong’s ICO Regulations May Mean for Major Cryptocurrency Exchange, Bitfinex

Julia Leung, the SFC’s Executive Director of Intermediaries has stated that the Securities and Futures Commission is “concerned about an increase in the use of ICOs to raise funds in Hong Kong and elsewhere… Those involved in an ICO need to be aware that some ICO structures may be subject to Hong Kong securities laws.”

The cryptocurrency community is speculating as to what the ramifications of Hong Kong’s ICO regulations may mean for major cryptocurrency exchange Bitfinex. It was long believed that Bitfinex is based out of Hong Kong, as is stated on the company’s wikipedia entry. Hong Kong is also listed as the location of the headquarters for Bitfinex’s parent company, Ifinex, on Bloomberg’s website. Bitfinex has stated that Ifinex is incorporated in the British Virgin Islands (BVI), and is subject to BVI laws. This claim is evidenced by correspondence between the United States Commodity Futures Trading Commission and Bitfinex.

Hong Kong appears to be developing regulations that largely mirror the policies United States and other western nations, adopting a far more permissive framework than China, which recently moved to ban all ICOs operating within China. Given Beijing’s dominance over the governing processes of Hong Kong, some within the cryptocurrency community are speculating that China may be using Hong Kong as a regulatory sandbox through which to experiment with more permissive regulation regarding ICOs outside of mainland China.