On June 27, Hong Kong’s Securities and Futures Commission (SFC) declared in their annual report that they will “keep a close watch” on crypto and Initial Coin Offerings (ICO). According to the watchdog, the new technology “comes with risks,” which is why they plan to “intervene when appropriate.”
Indeed, the SFC has stepped in with more definite regulatory policies this year, taking action against local crypto exchanges, ICOs and warning the public about potential risks related to investments in the crypto market. Meanwhile, Hong Kong continues to nurture financial, cross-border initiatives powered by blockchain, steadily gaining a reputation for being an important international blockchain hub.
Hong Kong, being an autonomous territory of China, has a separate political system from the rest of the country, which has its effect on the local economy as well. Therefore, the city does not inherit the Chinese approach towards crypto, and the infamous ICO blanket ban in September 2017 bypassed Hong Kong. As a result, many crypto-related businesses chose to move to the more crypto-friendly Hong Kong soon after the crackdown.
At that point, the Hong Kong Monetary Authority (HKMA), an agency which plays the role of the central bank in the region, had already partnered with its Singapore counterpart to run a blockchain-powered project to maximize trade and financing between the two global financial centers. By November 2017, around 20 banks from both countries enrolled in the project, wishing to ease the cross-border trading process.
Around the time when the Chinese authorities implemented a blanket ban on ICOs, Hong Kong regulators showed a more cautious approach. In September 2017, the Securities and Futures Commission (SFC), Hong Kong’s financial regulator, issued a public warning about potential dangers of crypto investments, pointing out that ICOs might be considered as ‘securities.’ That means that they have to be registered with the watchdog prior to publically seeking investments.
In February 2018, the SFC issued a second public warning on the potential risks of dealing with crypto exchanges and investing in ICOs, urging investors to do their due diligence and mentioned securities yet again. The SFC vowed to keep “policing” cryptocurrency and ICO markets.
Furthermore, in March, the SFC took hardline regulatory action. The agency halted Black Cell Technology’s ICO, arguing that the offering was an unregistered Collective Investment Scheme (CIS). According to the SFC, the Black Cell’s ICO scheme — telling investors that their investments would finance the development of the mobile app and give token holders the rights to equity shares of the company — constituted a CIS and thus a “security,” meaning that it had to be registered with the regulator prior to being sold. Black Cell was also ordered to refund its Hong Kong investors of their investments in the token.
Although the prospects of holding ICOs in Hong Kong has become more blurry due to the above mentioned SFC’s sentiments, Hong Kong’s stock exchange seems to attract mining players as large as Canaan Creative and Bitmain, who have expressed their interest in holding an Initial Public Offering (IPO) there.
On June 7, Bitmain’s CEO Jihan Wu claimed he is “open” to conducting an overseas IPO, with major backers appearing on the filing being Morgan Stanley, Deutsche Bank AG, Credit Suisse Group AG and CMB International Capital Ltd.
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