Hong Kong has some of the most used cryptocurrency exchanges in the world and has become increasingly significant in the cryptocurrency space since China’s bans on ICOs and virtual currency exchanges.

In common with other regulators worldwide Hong Kong authorities are leaning towards classing ICO tokens as securities. The Hong Kong Securities and Futures Commission (SFC) issued a statement today saying that they had sent letters to seven, as yet unnamed, cryptocurrency exchanges warning them that some of their traded tokens may be securities.

Under the Hong Kong Securities and Futures Ordinance (SFO), no securities may be traded without a licence. The SFC had previously released guidance of the regulatory requirements for security issued ICOs, as well as general warnings to market participants of the risks involved in these kinds of investments.

The SFC confirms that of the contacted exchanges most have either confirmed that they already comply with the regulations or have removed for Hong Kong investors the option to trade the offending tokens. The SFC states that it will “continue to closely monitor ICOs, and will not tolerate any violations of the securities laws of Hong Kong.

ICOs are often deliberately structured so that tokens may be offered as utilities. To the SFC such a classification is disingenuous and designed so the ICO will “fall outside the purview of the SFO and to circumvent the scrutiny of the SFC”.

The SFC’s Chief Executive Officer, Ashley Alder, warns that his agency “will continue to police the market and enforce when necessary”. He adds that it is also necessary for people in the market to behave responsibly and “do proper gatekeeping to prevent frauds or dubious fundraising and to assist us in ensuring compliance with the law.”

The statement comes in the same week as top US regulators addressed Congress on cryptocurrencies and ICOs. During his disposition, SEC chair Jay Clayton also argued that ICO tokens should be considered securities. “I believe every ICO I’ve seen is a security”, he said.

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