The Securities and Futures Commission cautioned about NFT

The Agency advised about risks when a wide range of popular tokens have fallen in market value.

On June 6, Hong Kong’s securities watchdog, the Securities and Futures Commission, talked for the first time about non-fungible tokens (NFTs), saying that some constitute investment products should be regulated. It also warned investors about the risks involved in investing in such tokens.

Since NFTs exploded into widespread awareness globally last year, Hong Kong has become one of the regions in Asia where enthusiasts have launched numerous projects selling cartoon avatars, artwork and fractional ownership of digital or physical assets as NFTs, according to South China Morning Post.

SFC’s warning comes at a time when a wide range of popular tokens, including bitcoin and ether, have plummeted in market value.

In the statement, the agency did not disapprove of the sale or minting of NFTs, however it warned buyers that as virtual assets, NFTs are exposed to increased risks, among which it cited illiquid secondary markets, volatility, opaque pricing, hacking and fraud. 

Therefore, potential investors should be aware of these risks and, if they cannot deal with them, should not invest in NFTs.

It is worth noting that most of the NFTs observed by the SFC are intended to represent a single copy of assets such as digital artwork, artwork, music or video.

«Where an NFT constitutes an interest in a CIS, marketing or distributing it may constitute a ‘regulated activity’. Parties carrying on a regulated activity, whether in Hong Kong or targeting Hong Kong investors, require a license from the SFC unless an exemption applies.»

About The SFC

The Securities and Futures Commission is the only Hong Kong financial regulator given the mandate to educate the investing public. We regulate Hong Kong’s multi-dimensional securities and futures markets. To carry out our statutory objectives and to meet the diverse needs of the markets, we adopt a multidisciplinary approach under a «one organization» ethos to leverage all of our regulatory tools and pool our expertise.