The same week China banned ICOs outright, Hong Kong regulators have released a “cautionary statement” to prospective investors.
Hong Kong Stays Softer On ICOs
The Chinese autonomous territory, despite the increasing influence from Beijing on its internal affairs, has so far opted to follow the example set by more lenient jurisdictions regarding cryptocurrency regulation.
The statement, which was publicly published Tuesday on the Hong Kong Securities and Futures Commission (SFC) website, reiterates the message that ICO tokens could constitute securities under local law.
The regulator explains:
This statement serves to explain that, depending on the facts and circumstances of an ICO, digital tokens that are offered or sold may be ‘securities’ as defined in the Securities and Futures Ordinance (SFO), and subject to the securities laws of Hong Kong.
China In Your Hand
The ICO industry has reacted sharply to the Chinese ban, the country having contributed $400 million of the industry’s estimated $1 billion revenues.
Token prices were down significantly Tuesday, demonstrating a weakness so far rarely seen coming from purely regulatory factors.
Previously, the US Securities and Exchange Commission (SEC) had issued multiple warnings about tokens requiring testing for securities compliance if necessary.
At the end of August, the SEC reiterated its willingness to “suspend public stocks” of organizations making ICO-related claims if it is “of the opinion that a suspension is required to protect investors and the public interest.”
It also highlighted several examples of stocks suspensions, which currently affect First Bitcoin Capital Corp., CIAO Group, Strategic Global and Sunshine Capital among others.
Warnings Not Threats?
With its latest comments, Hong Kong appears to be following in the SEC’s footsteps, underscoring the need for any digital token to adhere to relevant securities laws.
“Whilst digital tokens offered in typical ICOs are usually characterized as a ‘virtual commodity,’ the SFC has observed more recently that certain ICOs have terms and features that may mean that they are ‘securities,’” the SFC continues.
Further in line with the SEC, the statement explicitly warns members of the public to exercise caution and consult their legal obligations prior to handing over funds:
As the terms and features of ICOs may differ in each case, parties engaging in ICO activities are reminded to seek legal or other professional advice if they are in doubt about the applicable legal and regulatory requirements. […] Investors should fully understand the features of any products or business projects they intend to invest in, and carefully weigh the risks against the return before making an investment.
Meanwhile, it remains unclear whether China will permit ICOs to trade in a more controlled environment at some point in the future.