Hong Kong’s Securities and Futures Commission, the country’s securities regulator, has moved to shut down an initial coin offering (ICO) citing “potential unauthorized promotional activities and unlicensed regulated activities.”
Black Cell Technology was forced to halt its initial coin offering by the regulatory body. The project has complied with the official verdict by ceasing the token sale, and investors have been told their cryptocurrency will be returned.
The project was proposing to use investor funds for development of their app, with token holders promised equity shares in return. It was this feature that alerted the regulatory authority, who have classed the token as a security. The body’s official statement described the ICO has an “unlicensed regulatory activity”, with collective investment schemes required to register and comply with official regulations. Whilst the SFC has in the past issued warnings to companies, today’s news marks the first intervention to shut down an ICO in Hong Kong.
Black Cell Technology are developing a mobile-based food marketplace named Krops, which they believe will simplify business both for farmers and shoppers. It’s unclear how the project will proceed, however, with regulatory bodies clamping down on ICO’s. Previously projects launching via initial coin offerings have had to restrict access to investors from countries hostile to the business model. The US SEC (Securities and Exchange Commission) has in particular been clamping down on ICO’s with detailed investigations underway. Some projects have received subpoenas, and those just entering ICO stage are keen to stay out of potential investigation. China has been even stronger, however, issuing a blanket ban on all ICOs within the country.
Whilst the development in Hong Kong has taken some by surprise, the action by Hong Kong’s SFC has not come out of the blue. Last month the regulatory body issued a warning to cryptocurrency trading platforms to not involve themselves with tokens that could be perceived as securities. The body has been steadily developing its approach, indicating potential action as far back as September of last year when a statement was issued that some cryptocurrency platforms held features that could class them as securities.
Black Cell was likely particularly targeted because their token specifically referenced a return for token holders. It was a move that clearly marked the token as a potential security. Other projects have been more ambiguous in their approach however, and avoided direct regulatory intervention. But with authorities clarifying their approach towards ICOs, it remains to be seen for how long that freedom will continue.
Featured image of Hong Kong from Shutterstock.
Last modified: June 10, 2020 1:38 PM UTC