Hong Kong’s securities regulator is ramping up its scrutiny of domestic crypto exchanges by ordering them not to trade cryptocurrencies that are deemed as ‘securities’.
Following a previous notice where Hong Kong’s Securities and Futures Commission announced that some digital tokens offered through initial coin offering (ICO) sales would be deemed as securities, the regulator has now moved to take action against a number of domestic cryptocurrency exchanges and ICO issuers.
With a statement on Friday, the SFC revealed it had sent letters to seven unnamed cryptocurrency exchanges operating in or in connection with Hong Kong, warning them not to trade cryptocurrencies deemed as ‘securities’ under law, without a license.
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Noting that a number of Hong Kong cryptocurrency exchanges rank in the top 20 by daily trading volume, the SFC said the exchange operators – under scrutiny – ‘either confirmed that they did not provide trading services for such cryptocurrencies or took immediate rectification measures, including removing relevant cryptocurrencies from their platforms.’ Additionally, the SFC warned of disciplinary action against exchanges disregarding the classification of ‘securities’ under law, as well as repeat offenders.
Separately, the regulator also revealed it had sent letters to seven ICO issuers which saw ‘most of them’ confirm compliance to regulations or ‘immediately cased to offer tokens to Hong Kong investors.
The regulator added:
“The SFC will continue to closely monitor ICOs, and will not tolerate any violations of the securities laws of Hong Kong.”
The regulator’s revelations comes within a week of Hong Kong authorities launching a public campaign to educate and warn investors of investments risks in cryptocurrencies and ICOs.
“We will continue to police the market and enforce when necessary,” added SFC chief executive Ashley Alder. “But we are also urging market professionals to do proper gatekeeping to prevent frauds or dubious fundraising and to assist us in ensuring compliance with the law.”
Further, the SFC warned investors that storing fiat or cryptocurrencies with unregulated exchanges leaves them open to hacking and mismanagement risks, citing investor complaints against cryptocurrency exchanges and ICO issuers.
‘The SFC may not have jurisdiction over cryptocurrency exchanges and ICO issuers if they have no nexus with Hong Kong or do not provide trading services for cryptocurrencies which are “securities” or “futures contracts”,’ the regulator said, adding: ‘If, however, there is suspicion of fraud, the SFC is open to refer cases to the Police for investigation.’
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