Hong Kong Regulators Warn ICO Tokens May be Securities Under the Law

The recent torrent of startups raising funds from the crowd via an Initial Coin Offering (ICO) Initial Coin Offering (ICO) An Initial Coin Offering (ICO) is a kind of crypto token sale that is used as a method of fundraising, similar to an Initial Public Offering (IPO), in which stocks are sold to raise money for a company.In order to launch an ICO, a company simply needs to create a website, issue a token, and set a time and date for the sale. Investors buy ICO tokens in exchange for another cryptocurrency, like Bitcoin or Ethereum; after a set amount of time, they receive the tokens they purchased in the sale.Acco An Initial Coin Offering (ICO) is a kind of crypto token sale that is used as a method of fundraising, similar to an Initial Public Offering (IPO), in which stocks are sold to raise money for a company.In order to launch an ICO, a company simply needs to create a website, issue a token, and set a time and date for the sale. Investors buy ICO tokens in exchange for another cryptocurrency, like Bitcoin or Ethereum; after a set amount of time, they receive the tokens they purchased in the sale.Acco Read this Term) keeps attracting regulatory attention all over the world. Today, Hong Kong's Securities and Futures Commission (SFC) issued a statement on existing regulations which could be applicable to the Blockchain Blockchain Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned). In this sense, blockchain is immune to the manipulation of data, making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tamp Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned). In this sense, blockchain is immune to the manipulation of data, making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tamp Read this Term token sales.

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The SFC has observed that certain ICOs have terms and features that may mean that the tokens are “securities” and therefore subject to the securities laws of Hong Kong.

Where the tokens involved in an ICO fall under the definition of securities, the regulators warn that dealing in or advising on such tokens, or managing or marketing a fund investing in them, may constitute a regulated activity. Parties engaging in a regulated activity targeting the Hong Kong public are required to be licensed by or registered with the SFC, irrespective of where they are located.

“We are concerned about an increase in the use of ICOs to raise funds in Hong Kong and elsewhere,” said Ms. Julia Leung, the SFC’s Executive Director of Intermediaries. “Those involved in an ICO need to be aware that some ICO structures may be subject to Hong Kong securities laws.”

It is important to note that, unlike the regulators in mainland China which yesterday banned ICOs altogether, the SFC took the more Western approach of only demanding that tokens that effectively function as securities be appropriately handled as such. This is most famously the approach taken by American regulators, but other authorities have also taken this approach, such as in Canada.