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‘Many ICOs are Dubious, Downright Frauds’, Says Hong Kong Regulator

Last Updated March 4, 2021 5:06 PM
Samburaj Das
Last Updated March 4, 2021 5:06 PM

A senior official at Hong Kong’s securities regulator has, once again, reminded the public to be cautious of investments in initial coin offerings (ICOs).

In a speech on new technologies on Friday, Hong Kong Securities and Futures Commission (SFC) deputy chief Julia Leung reiterated previous concerns of risks associated with initial coin offerings.

“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,” Leung said whilst stressing that the regulator’s interests lie in protecting the investing public first and foremost.

Leung, who is also the chair of the SFC’s Fintech Advisory Group, claimed that the average investor would find it hard to decipher the “highly technical content and opacity” of some projects seeking fundraising, stating it was ‘more suited for professional investors’ from VC funds instead.

More pointedly, her comments then drew attention to projects purporting to use blockchain technology as a buzzword to promise lofty technological claims with little or no innovation to back those promises.

She stated:

[M]any of these fundraising are dubious, if not downright frauds. The issuers escape the scrutiny of the police or securities regulators because of their cross-border nature and the way the crypto assets are structured to fall outside any regulator’s perimeter.

The official’s comments follow an earlier statement in September which provided guidelines for ICO issuers to follow in advance of a fundraising operation. Certain ICOs could also be deemed as ‘securities’, Leung said at the time.

The scrutiny has since at least seven exchanges with a domestic presence receive warning letters from the regulator, reminding them not to trade cryptocurrency tokens seen as ‘securities’ without a license. “The SFC will continue to closely monitor ICOs, and will not tolerate any violations of the securities laws of Hong Kong,” the regulator said at the time.

In March, the SFC moved to shut down an initial coin offering citing “potential unauthorized promotional activities and unlicensed regulated activities”

In light of the increasing public interest, Hong Kong authorities launched a public awareness campaign to educate investors and the general public on cryptocurrencies and ICOs earlier in January using advertisements, infographics, articles and more.

“Many millennials who subscribe to digital tokens in ICOs5 understand that there is no intrinsic value in the tokens but are betting on the rapid rise of the token value in the secondary market,” Leung added during her speech, pointing to a “mercurial rise and fall of bitcoin prices” bringing about a “trading frenzy” among new and retail investors in the space.

Featured image from Shutterstock.