In Hong Kong, the SFC is in charge of NFTs because they are changing from collectibles to financial assets, which the government says is very dangerous and requires a license.
Hong Kong’s Securities and Futures Commission (SFC) recently put NFTs in a guidance paper as “collective investment schemes” instead of collections.
Because of the recognition, the SFC is now in charge of NFTs. The law says that NFTs are high-risk investments that need a certain kind of license.
The letter acknowledged that NFTs are what they are and that they are on their way to becoming an investment tool like securities. In the letter, the following was written:
“The SFC recently saw that NFTs were set up in a way that was similar to “securities,” or more specifically, to “collective investment schemes” (CIS).”
Because NFTs are increasingly being used as a way to invest, the SFC was given the power to regulate them. Under the new method, each NFT that has a stake in a CIS, marketing, or distribution must get permission from the SFC.
Plan for investing money together
Collective investment plans are what the SFC calls “schemes involving an agreement about property managed as a whole, in which the participants have no control over how the property is run and try to make money.”
Because of this, any NFT collections that are issued in Hong Kong or are aimed at investors in Hong Kong are now considered CIS and will need a license.
Hong Kong’s rules and regulations
The SFC and the Hong Kong Monetary Authority (HKMA) both put out the 2022 Crypto Regulation Circular on January 28, 2022. In the Circular, “virtual assets” are defined, and problems with goods related to virtual assets are talked about.
Virtual asset products are any assets that are meant to be invested in, get their value from virtual assets, or have the same investment returns as virtual assets.
The Circular has a lot of advice for organizations that want to share or deal with virtual assets. Each company must get a different license based on whether its main customers are professional investors or regular people.
NFTs Pose a Risk
The SFC calls NFTs a product related to virtual assets because they have the same kinds of investment returns as virtual assets.
Even so, SFC still thinks that NFTs are a risky investment. A recent letter says that investors in NFTs could lose money because of illiquid secondary markets, price volatility, unclear pricing, hacking, and fraud.
