Hong Kong Securities and Futures Commission Calls for Regulation of NFTs

The Hong Kong regulator warns investors of risks associated with investing in non-fungible tokens

article-image

Blockworks exclusive art by Axel Rangel

share

key takeaways

  • The agency’s main concern lies in the securitization of NFTs
  • Only licensed institutions can operate collective investment schemes

A Hong Kong Securities and Futures Commission statement published on Monday defines which NFTs fall under its mandate, while advising investors to be mindful of regulated securities.

The statement warned of risks such as “illiquid secondary markets, volatility, opaque pricing, hacking and fraud,” and cautioned that if investors “cannot fully understand them and bear the potential losses, they should not invest in NFTs.”

The Securities and Futures Commission (SFC) is particularly concerned about assets that “push the boundary between a collectible and a financial asset” — those that are structured like a security or a collective investment scheme (CIS). 

A CIS is a type of investment arrangement to pool money around a certain asset or property. The Hong Kong Securities and Futures Ordinance (SFO) specifies that a CIS is managed in escrow, and its participants do not have day-to-day control over its management but are subject to receive profits, income or other returns. 

A recent example includes the Royal Museum of Fine Arts Antwerp’s fractionalization and security token offering on the Polygon blockchain of James Ensor’s 1924 painting “Carnaval de Binche.”

While such fractionalized NFTs (non-fungible tokens) fall under the SFC’s mandate, NFTs of a digital image, artwork, music or video that represent a unique copy of an underlying asset do not.

The financial regulator stated that any Hong Kong residents who wish to issue NFTs or to target local investors must obtain a license from the SFC, or be subject to certain authorization requirements under the SFO.

Recently, Hong Kong also limited the sale of crypto spot ETFs to only professional investors, which it defined as those whose portfolio exceeds 8 million Hong Kong dollars (about $1.2 million). And the Hong Kong Monetary Authority deemed “payments-related stablecoins” as a risk to financial stability.


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Javits Center North | 445 11th Ave

Tues - Thurs, March 18 - 20, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

Brooklyn, NY

TUES - THURS, JUNE 24 - 26, 2025

Permissionless IV serves as the definitive gathering for crypto’s technical founders, developers, and builders to come together and create the future.If you’re ready to shape the future of crypto, Permissionless IV is where it happens.

recent research

Research Report Templates.png

Research

An overview of the Base Ecosystem, with a focus on market leaders.

article-image

Although bitcoin hitting $120k by year’s end is looking unlikely

article-image

About 270 million HYPE has been claimed, valued around $7.6 billion

article-image

Stanford professors David Mazières and Dan Boneh will lead the lab alongside a cohort of graduate student researchers

article-image

With more companies holding BTC, bitcoin yielding strategies could become “a new corporate finance norm,” CoinShares posed

article-image

The proposal comes after Polygon governance considered a controversial use of bridged liquidity for yield

article-image

Can the community balance its decentralized ethos with the need for inclusivity and constructive debate?