31 August 2021
The Securities and Futures Commission (the “SFC”) warns unregulated virtual asset platforms
On 16 July 2021, the SFC published a warning statement on unregulated virtual asset platforms (the “Warning Statement”. The SFC noted that Binance, one of the most popular cryptocurrency exchanges globally, has offered trading services in Stock Tokens in a number of jurisdictions. The SFC expressed concerns that these services may also be offered to Hong Kong investors without the platforms being licensed or registered to conduct “regulated activity” in Hong Kong.
In the Warning Statement, the SFC noted that the meaning of Stock Tokens are “virtual assets that are represented to be backed by different depository portfolios of underlying overseas listed stocks, with their prices closely tracking the performance of the respective stocks”. Stock Tokens are likely to be “securities” as defined under the Securities and Futures Ordinance (Cap. 571)(the “SFO”). This would render any offering of Stock Tokens, and any person offering them, subject to the SFC’s regulations and supervision.
While the public is aware that the companies managing virtual assets platforms are incorporated in overseas jurisdictions (Binance, for example, is incorporated in the Cayman Islands), these platforms must obtain a the SFC reminded those platforms of the importance of obtaining a licence if they are actively marketing, whether itself or another person on its behalf and whether in Hong Kong or from a place outside Hong Kong, to the Hong Kong public any services that they provide, which would constitute a regulated activity if provided in Hong Kong under section 115 of the SFO.
Furthermore, the SFC made it clear that it has received complaints from investors who experienced difficulties in withdrawing fiat currencies or virtual assets from their accounts opened with unregulated platforms. Investors are further reminded that if such platforms do not have a nexus with Hong Kong, the SFC may not have jurisdiction over them. In case of dispute, seeking recourse is likely to be difficult.
For further information, please contact:
Hugo Sze-To, Hauzen LLP
hugoszeto@hauzen.hk
