Hong Kong’s Securities and Futures Commission (SFC) has warned the public about the risks of participating in initial coin offerings (ICOs), saying many of the projects adopting this fundraising method “are dubious, if not downright frauds”.
Speaking at an investment industry event late last week, Julia Leung Fung-yee, SFC deputy chief executive officer and executive director, said: “While we acknowledge that innovative technologies such as blockchain have the potential to improve efficiency and financial inclusion, that does not entitle anyone to conduct fundraising from the public in violation of securities law.”
“Many millennials who subscribe to digital tokens in ICOs understand that there is no intrinsic value in the tokens but are betting on the rapid rise of the token value in the secondary market,” Leung said in her speech.
“The mercurial rise and fall of Bitcoin prices has fanned a trading frenzy in crypto assets and helped the emergence of crypto exchanges in Asia, subject to little or no regulatory oversight.”
She said issuers “escape the scrutiny of the police or securities regulators because of their cross-border nature and the way the crypto assets are structured to fall outside any regulator’s perimeter”.
Considering the highly technical content and opacity of many of the ICO projects, professional investors such as venture capital funds, instead of average investors, are more suited to invest in ICOs, Leung said.
The securities watchdog has already taken action against a number of ICO issuers and crypto asset platform operators.
The agency ordered trading platforms to remove securities tokens from their shelves. It also stopped an ICO project launched by Black Cell Technology on the grounds that it was offering unregistered securities in Hong Kong.
In her speech, Leung sought to assure the financial community that the regulator will continue to police the market and enforce relevant rules and regulations.
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