The Hong Kong Securities Regulatory Commission (HKSRC) believes that non-interchangeable tokens, sitting on the border of art and securities, carry great risks for investors.
The HKSRC has warned investors of the risks associated with NFTs and advised investors to consider investing only if they fully understand the risks.
The regulator said the list of risks includes factors such as lack of liquidity in the secondary market, price volatility, lack of transparency in pricing and risk of hacking. The regulator has previously noted that some NFTs have unique qualities.
“Some NFTs are on the borderline between collectibles and financial assets such as securities. This is especially evident in the case of tokenized NFTs, which are collective investment schemes,” the regulator said.
The HKSRC notes that if NFTs are considered “of only special interest within a collective investment scheme,” then any marketing or distribution thereof could fall under “regulated activity.” According to the supervisor, any person engaging in such activities must be licensed.