Hong Kong Securities Regulator accuses ICOs of being ‘Downright Fraud’

The Hong Kong Securities Regulator has taken a highly sceptical tone towards Initial Coin Offerings (ICOs), referring to them as fundraising efforts of ‘Downright Fraud’, citing a lack of oversight and regulation as being a significant danger.

Speaking at an investment industry function, the deputy head of the Hong Kong Securities and Futures Commission (SFC) spoke of the risks attached to such a new area of the investment world. 

“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.”

Julia Leung, the deputy head of the SFC continued, stating that the implicit risks surrounding cryptocurrency are also due to the volatility, affecting investors and the market as a whole.

“The high volatility of crypto assets and serious hacking incidents in Japan and Korea in the past few months resulting in hundreds of millions in US dollar losses should serve as a sharp reminder of the risks associated with such trading.”

Hong Kong has taken increasingly strong steps against unauthorised ICOs. The speech comes one month after the SFC took regulatory action against the ICO sale of Black Cell Technology. This includes reaching out to other companies as a preventative measure to stall unauthorised sales.

Since 2017, Hong Kong has gained a reputation, alongside Singapore, as a trading hub for cryptocurrencies and ICOs. In 2017, Hong Kong hosted numerous, multi-million dollar ICOs. But a regulatory clampdown demonstrates that the nation seeks a greater level of transparency.

According to Leung, Initial Coin Offerings carry a higher burden of risk for investors, due to the way they stand apart from other regulated activities. Coming under the broader definition of securities would allow for oversight that many nations, including Hong Kong, seek.

“if the digital tokens involved in an ICO fall under the definition of “securities”, dealing in or advising on such digital tokens, or managing or marketing a fund investing in them, may constitute a regulated activity.”

This hypothetical is shared with the American Securities and Exchange Commission (SEC). Arguing that ICOs represent a form of Security bought by investors and that a hard-line stance is not the appropriate approach to take.

The SEC has had its fair share of issues regarding Initial Coin Offerings; having recently taken legal action against Centra Tech. One complication arises from the fact that ICOs and cryptocurrencies have been met with a diverse response worldwide.

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