Hong Kong
12 February 2018
Reporter: Jenna Lomax

Hong Kong SFC warns of cryptocurrency risks

The Securities and Futures Commission (SFC) has alerted investors to the potential risks of dealing with cryptocurrency exchanges and investing in initial coin offerings (ICOs).

The SFC has sent letters to seven cryptocurrency exchanges in Hong Kong or with connections to Hong Kong.

The exchanges were warned that they should not trade cryptocurrencies, which are ‘securities’ as defined in the Securities and Futures Ordinance (SFO), without a licence.

Most of these cryptocurrency exchanges either confirmed that they did not provide trading services for such cryptocurrencies or removed relevant cryptocurrencies from their platforms.

The SFC has also written to seven ICO issuers, most of which confirmed compliance with the SFC's regulatory regime or immediately ceased to offer tokens to Hong Kong investors.

The Hong Kong authority said it may take further action against cryptocurrency exchanges which “disregard the provisions of the SFO and those which are repeat offenders”.

The SFC also stated it will continue to closely monitor ICOs, and will “not tolerate any violations of the securities laws of Hong Kong”.

Investors have also been advised by the SFC to be aware of the “increased risk of extreme price volatility, hacking and fraud when investing in cryptocurrencies and ICOs”, and using services of cryptocurrency exchanges.

SFC warned that where these occur in an online environment, victims may have difficulty pursuing action against cryptocurrency exchanges or fraudsters to recover losses.

Julia Leung, SFC’s executive director of intermediaries, said: "If investors cannot fully understand the risks of cryptocurrencies and ICOs or they are not prepared for a significant loss, they should not invest."

He added: "Investors who store their fiat currencies and cryptocurrencies with unregulated cryptocurrency exchanges should be aware of the risks of hacking and misappropriation of assets."

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