SFC warns crypto exchanges against unlicensed trading of securities

The authority notes that ICOs are usually structured to escape regulatory scrutiny.

As the number of cryptocurrency exchanges with links to Hong Kong rise to the global top 20, the Securities and Futures Commission issued warnings to seven cryptocurrency exchanges in Hong Kong against trading securities – as defined in the Securities and Futures Ordinance – without a licence. 

According to a press release, SFC noted that ICOs are typically structured in such a way that the offering falls outside the purview of SFO so as to escape scrutiny from the regulatory body. 

SFC adds that it retains the option to take further action against repeat offenders and refer cases for police investigation upon suspicion of fraud. 

This follows a series of complaints lodged by investors who alleged unlicensed or fraudulent activities against ICO issuers. 

Investors reported they were unable to withdraw fiat currencies from accounts opened with crypto exchanges, with some claiming that the exchanges misappropriated their assets and that technical breakdowns on the platform resulted in significant losses.

"If investors cannot fully understand the risks of cryptocurrencies and ICOs or they are not prepared for a significant loss, they should not invest. Investors who store their fiat currencies and cryptocurrencies with unregulated cryptocurrency exchanges should be aware of the risks of hacking and misappropriation of assets," said SFC Executive Director Julia Leung. 

The SFC also pushes for caution amidst high risk levels of hacking and fraud in token sales and cryptocurrency investments.