The Securities and Futures Commission (SFC) of Hong Kong has issued a notice to warn investors about the risks associated with investing in NFTs.
Since the popularity of NFTs has been increasing exponentially in the last few years, the SFC said in the notice, “NFTs are exposed to heightened risks including illiquid secondary markets, volatility, opaque pricing, hacking and fraud.”
These risks could lead to investors losing huge amounts of money if they do not fully understand them.
SFC also notes that NFTs which represent a genuine digital representation of a collectible does not fall under the purview of the SFC.
However, fractionalized or fungible NFTs structured as securities or collective investment schemes (CIS) in NFTs, do fall under the SFC’s mandate. These NFTs blur the boundary between a collectible and a financial asset.
To market and distribute NFTs which constitute as a CIS to the residents and investors of Hong Kong, the issuer requires a licence from the SFC.
The notification further indicates that an NFT arrangement that involves the Hong Kong public participating in a CIS may be subject to the SFO’s authorization requirements.
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