Hong Kong Regulators Warn Investors About NFT Risk

NFT makers in Hong Kong must register with the Securities and Futures Commission. (Pixabay)

JAKARTA – The Hong Kong Securities and Futures Commission (SFC) recently warned investors about the risks posed by Non-Fungible Tokens (NFT). This is because the popularity of NFT digital art has soared in recent years.

“Like other virtual assets, NFTs are exposed to high risks, including illiquid secondary markets, volatility, unclear pricing, hacking and fraud. Investors should be aware of this risk, and if they cannot fully understand it and bear the potential loss, they should not invest in NFTs," the statement said.

However, SFC itself focuses on securitization issues around NFT. “The majority of NFTs observed by SFC are intended to represent unique copies of underlying assets such as digital images, artwork, music, or videos,” which do not require regulation by the SFC.

SFC wants to remove the line between collectibles and financial assets. For example digital collections traded as securities or collective investment schemes (CIS) in NFTs are under the auspices of the SFC.

Therefore for Hong Kong residents, NFT companies or issuers are required to obtain permission from SFC in advance with certain exceptions. On the other hand, these efforts have the potential to eliminate an important factor in cryptocurrencies and NFTs, namely decentralization.

According to SCMP, Hong Kong's regulator has moved towards regulating cryptocurrencies, after proposing a regulatory framework that regulates virtual asset service providers with a number of licenses and restricts them to serving professional investors.

“This is a timely and reasonable warning given the large number of new NFT projects being marketed to the general public in Hong Kong, both through online and offline methods, including billboards on subways and on buses,” said Charles To, a partner at Elalan law firm in Hong Kong.

For information, since the NFT boom last year, fans in Hong Kong have launched various NFT digital art projects.