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Hong Kong’s Securities and Futures Commission Sets New Regulations for Crypto Exchanges

The Securities and Futures Commission, Hong Kong’s financial regulator, has set out new regulations for Bitcoin and cryptocurrency exchanges on Nov. 6. Announced by Ashley Alder, Chief Executive of the Hong Kong SFC made an announcement in his speech at the Hong Kong FinTech Week 2019. Following his speech, the SFC also published a new regulatory approach to “virtual asset trading platforms,” on its website.

The approach is technology-neutral

Alder started his speech by saying that the regulator has been contending with the growing list of issues, including the application of existing regulations in the “context of increased automation and the adoption of artificial intelligence and machine learning.”

The SFC has been concerned about financial services that have been outsourced to “big tech” companies, and issued a statement last month on how to make records accessible when firms use cloud computing.

Alder reiterated: “We recognize that we must be open to the benefits of innovation, but our bottom line is that we need to stay vigilant about the risks of new technology. The basic approach is technology-neutral.”

The new regulatory approach to crypto exchanges

Following last year’s announcement on a conceptual framework for the potential regulation of crypto exchanges, the SFC has considered whether it is appropriate to grant licenses to exchanges and regulate them.

These new standards seek to address regulatory concerns regarding custody, know-your-client (KYC) requirements, anti-money laundering (AML), and counter-financing of terrorism (CFT) and others for trading crypto.

Licenses could be granted to the crypto exchanges that choose to include “security virtual assets or tokens for trading,” where investors will be able to differentiate between regulated platforms from those that are unregulated.

Although the SFC is open to supervising crypto exchanges, it has made clear that “the virtual assets traded on the platform are not subject to the authorization or prospectus registration provisions that apply to traditional offerings of “securities” or “collective investment schemes.”

The SFC will also not be able to take action against market misconduct in the traditional securities and futures markets as it cryptos are not recognized as “securities” or “futures contracts,” even if the exchange is licensed. Licensed exchanges will also be placed in the SFC Regulatory Sandbox for some time under close and intensive supervision.

Libra and stablecoins

Apart from the growing interest of Bitcoin futures, which has started offerings in the US by established exchanges, stablecoins such has Libra also caught the SFC’s attention.

“These typically claim to have a mechanism to stabilize their value by backing a virtual token – or coin – with fiat currencies, commodities, or a basket of other crypto assets. That’s not to say that these are 100% stable,” said Alder.

This calls for attention in the areas of domestic data privacy, financial stability, competition, anti-money laundering, and consumer and investor protection.

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First Crypto Fund Approved by Hong Kong’s Financial Regulator Aims to Pass $100M in its First Year

Hong Kong’s first approved cryptocurrency fund, Arrano Capital, the blockchain arm of Venture Smart Asia announced its rollout of a new Bitcoin fund in Hong Kong.

The Securities and Futures Commission (SFC), Hong Kong’s financial regulator announced its guidelines for crypto-related funds in October 2018. In its statement, the SFC stated that all licensed portfolio managers who are investing in cryptocurrencies to follow the same regulatory requirements whether the management invests partially or solely in digital assets. A sandbox scheme has been designed for an initial understanding of the operations in digital assets. The licensing process will require companies to inform the regulatory about their operations.

Since the regulatory has released its stance of cryptocurrencies, crypto asset managers including Diginex have been granted a license. However, the regulator only allows those who have not met the full criteria to run purely crypto funds to promote the service to professional investors only.

The SFC set out new regulations for cryptocurrency exchanges in November 2019, during his speech at the Hong Kong FinTech Week 2019. The SFC has been concerned about financial services that have been outsourced to “big tech” companies and issued a statement last month on how to make records accessible when firms use cloud computing.

Arrano Capital has cleared its licensing conditions with the SFC to let it deal with digital assets this month, and has become the first fund to obtain such approval from the Hong Kong regulator.

Avaneesh Acquilla, Chief Investment Officer at Arrano said that the first attempt would be a tracker fund, buying and selling Bitcoin. The firm aims to pass $100 million in digital assets under management in its first year and launch a second fund with a basket of tokens later on this year.

Acquilla said, “We decided to launch this fund to address market demand from professional investors who are increasingly focused on Bitcoin as an alternative store of value. Ultimately for Bitcoin to be widely accepted and for people to trust it, there needs to be regulation.”

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Why Hong Kong is Still Not Ready to Become Asia's Leader in Crypto and Blockchain

Hong Kong’s financial regulator, the Securities and Futures Commission (SFC) has been seen slowly embracing cryptocurrencies, or as it refers to as virtual assets in the past years.

The special administrative region’s financial regulator has set out regulations for Bitcoin and other cryptocurrency exchanges in November last year and has published a new regulatory approach to virtual asset trading platforms.

With the observation of a growing list of issues, the SFC has then been gradually warming up to set new standards to address regulatory concerns regarding custody, know-your-client (KYC), anti-money laundering (AML), and counter-financing of terrorism (CFT).

The SFC decided that licenses could be granted to crypto exchanges or virtual asset service providers that choose to include “security virtual assets or tokens for trading,” where investors will be able to differentiate between regulated and unregulated platforms.

So why is Hong Kong still not ready to become a leader in crypto in Asia?

During a live webinar, as part of the UK FinTech Week, Clara Chiu, the Head of Fintech Unit & Director of Licensing at the SFC explicitly stated that Hong Kong does not have the mandate to create a large regulatory regime for cryptocurrencies or to attract more investors or players in the crypto field.

“We however definitely welcome serious and committed crypto companies to Hong Kong. These companies, as we have heard from them, would like to [be] properly licensed and supervised by a regulator under a clear regulatory framework,” said Chiu. “Also, some of the businesses in the crypto world, in fact, has brought into the security sector in Hong Kong. We, therefore, consider that having a clear regulatory framework, in fact, may be necessary and beneficial to all.”

Rather than promoting the crypto sector, Hong Kong is rather focused on protecting investors and promoting new regulations for the same reason. Is focusing on licensing enough for the city?

Chiu believes that with the addition of new regulations in the crypto space will not stifle innovation, as the SFC hopes to set the foundation for the crypto industry to expand “in an orderly manner.”

“As a financial regulator, our responsibility is to protect investors, as well as promote efficiency and fairness of the Hong Kong financial industry. There must be a right balance between facilitating market development and protecting investors. We will maintain our high regulatory standards, where we consider giving any license to virtual asset trading platforms or fund managers, under our regime,” explained Chiu.

Virtual asset trading platforms are still new to the SFC, and Chiu added that the regulator will be taking “every single step with extra care.” More observation after granting licenses as well as the monitoring of the global virtual asset market development will be needed before any “relaxation.”

How does Hong Kong fair compare to its FinTech competitive neighbor?

In recent years, Singapore has emerged as a breeding ground for blockchain and crypto startups, which has been highly supported by the government towards embracing innovative technologies.

Sopnendu Mohanty, the Chief Fintech Officer of the Monetary Authority of Singapore (MAS), spoke at a panel in Singapore late 2019, emphasizing that billions of the future of the financial sector rely on the shift from a physical to a digital world. By 2020, the MAS is expected as the year of huge production lines for blockchain. By 2020, Mohanty said that the MAS would get to one product grade case in the blockchain space. Mohanty directed at those who were investing their money and time on blockchain and said, “don’t lose hope.”

Mohanty added, “People don’t realize in Singapore, especially we put a huge bet on this technology three years ago, but everybody in the world was dismissing blockchain as a hype, you know we are the only regulator and institution, that took this whole thing seriously.”

Singapore has been quickly coming out with new regulations, including the Payment Services Act, which closely resembles the nature of the 5AMDL measures in Europe, came into effect on Jan. 28. The legislation requires cryptocurrency providers and exchanges to be licensed under some of the same regulatory elements as traditional financial service providers. In addition, crypto firms must also comply with the Financial Advisers Act, Insurance Act, Securities and Futures Act, and the Trust Companies Act.

Although Singapore has been quite late to the party, there is also a license exemption under the Payment Services Act, which allows for companies providing digital payment token services exempt from needing a license to operate for six months from the commencement of the Act, which ends on July 28, 2020.

Singapore’s FinTech sector has attracted international attention, as acting as a gateway into Asia. Market research by Accenture noted that the total value of FinTech deals in 9 months jumped by 69% in 2019 to US$735 million from US$435 million from the previous year. However, the number of deals fell by one-third to 93, from 133 from the previous year – which could indicate maturation in the industry, as investors preferred to invest more money into fewer deals.

Will Hong Kong’s crypto market make it through the coronavirus pandemic?

Previously reported by Blockchain.News, in the opening session of the Asian Financial Forum, the Chief Executive of Hong Kong, Carrie Lam, gave a speech acknowledging that Hong Kong has faced challenges and economic turmoil in the past year due to anti-government protests, as well as the US-China trade war.

She added that financial technology would remain one of the high priority sectors in the city. Having issued eight virtual banking licenses and two virtual insurer licenses, according to Lam, the instant payment system launched in 2018 has reached US$307 million in total transactions every day.

Financial Secretary of Hong Kong, Paul Chan been under intense pressure from lawmakers to dip into the government’s fiscal reserves to help the city get out of an economic slump. After months of anti-government protests and the emergence of the coronavirus epidemic, Hong Kong residents aged over 18 will receive a cash handout of HK$10,000. The budget also highlighted the forecast of an all-time high deficit of HK$139 billion for the coming fiscal year.

In the budget for 2020-2021 announced by Chan, innovation and technology has been mentioned as an important growth engine for future economic development. The Hong Kong government has allocated over a hundred billion dollars to support the innovation and technology sector.

A complete comprehensive evaluation of Hong Kong’s anti-money laundering and counter-terrorist financing regime was completed in mid-2019. Adhering to the recommendations of the evaluation report, the Hong Kong government is considering to incorporate virtual asset service providers into the AML/CFT regulatory framework.

However, not all crypto firms may last long.

Bitspark, a blockchain remittance startup based in Hong Kong, recently announced its closure, stating reasons due to internal restructuring issues, as well as the coronavirus outbreak and protests that led to the current deterioration of Asia’s financial hub.

Bitspark CEO, George Harrap emphasized the company’s excellent performance a year prior to its closure, as the company became one of the major blockchain-based financial services firm in the Asia Pacific region.

Harrap explained, “While the HK protests and now virus epidemic haven’t affected us much, it hasn’t helped either,” two events which have taken a toll on the city for over eight months. Although the main reason was due to the company’s COO, Maxine Ryan’s decision to step down, she added, “This paired with the landscape of Hong Kong with protests and the coronavirus where Bitspark HQ is located.”

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DLA Piper: Security Tokenization in Hong Kong

Security tokenization is the representation of fractional interests in an asset using blockchain. A security token derives its value from an underlying asset, such as a work of art. This differs from a utility token, which gives a holder the right to use a particular product or service, or a cryptocurrency such as Bitcoin, which has its own value as a currency.

This article will outline advantages for asset owners and investors, key aspects of the publicly-stated approach of the Securities and Futures Commission of Hong Kong (“SFC”) to security tokens, and our observations regarding security tokenization in Hong Kong.

Advantages for asset owners

Security tokenization could represent a new way to raise capital efficiently. It could unlock liquidity for asset owners by giving them access to a larger potential pool of investors. This is particularly valuable for high-value illiquid assets such as real estate or fine art because security tokenization broadens the class of potential purchasers to include small investors that are only seeking a fractional interest in an asset. This, in turn, allows for the spreading of risk and adds a liquidity premium to the value of the asset.

An important feature of security tokenization is the flexibility of tokenomics. The self-executing smart contract embedded in a token can be drafted so the token represents anything from the equity in a legal structure owning an asset, to an interest in debt secured by an asset, to an interest in an income stream based on cash flows from an asset. This gives owners optionality to suit their needs and the ability to devise investment propositions to attract potential investors.

Advantages for investors

Investors can gain exposure to an asset with security tokenization that they might not ordinarily be able to acquire outright. Although they could acquire a unit in a vehicle such as a real estate investment trust, this would usually involve exposure to more than one asset, and the investment holdings of such a trust are restricted in various ways. In contrast, security tokenization facilitates single-asset exposure, giving investors much greater direct control over their investment portfolio allocations.

The fast digital nature of security tokenization is another key advantage. Due to information disclosures facilitated by smart contracts, investors can be provided with information 24 hours a day. They can then trade tokens based on that information at any time because a token exchange is not tied to the trading hours of a traditional securities exchange. This is especially attractive in a volatile market.

The SFC’s approach

In many instances, the SFC regulates security token offerings. In addition, certain security token-related activities will require an SFC license, including the marketing and distribution of security tokens (whether in Hong Kong or targeting Hong Kong investors) and the operation of an electronic trading platform for matching client orders in Hong Kong.

Furthermore, the SFC’s current position is that security tokens should only be offered to Hong Kong “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong).

Our observations regarding security tokenization in Hong Kong

Our Hong Kong asset owner clients are showing interest in increasingly sophisticated tokenomics specifications, including how to disclose, or equally limit the disclosure, of information to investors.

From a technology perspective, security tokenization would enable investors to trade tokens on digital assets exchanges as these come online. At the moment potential token issuers currently seem more focused on using tokenization to raise funds in the first instance. This might be a reflection of current market dynamics and we predict that there will be an increased focus on secondary market liquidity as the sector develops.

In a post-COVID-19 world, one of the few certainties is that the market will need to do more with less.  With its speed, efficiency and reliability, security tokenization could be the catalyst for the transformation of asset ownership and investment.

This article was written by: Scott Thiel and Jonathan Gill, DLA Piper

Hong Kong SFC Agrees in Principle to License Fidelity Backed OSL Crypto Firm

Hong Kong’s Securities and Futures Commission (SFC) has agreed in principle to license the cryptocurrency firm OSL Digital Securities.

Hong Kong’s financial markets regulator, the SFC has agreed in principle to issue a license to OSL Digital Securities. The cryptocurrency firm is part of the Fidelity-backed BC group and was one of the first to apply for a digital asset license from the Hong Kong Securities and Futures Commission.

OSL said in November 2019, that it had applied to opt into the SFC’s regulations as announced by the regulator on Nov. 6.

SFC Opt-In Regulations

The Hong Kong Securities and Futures Commission announced the new opt-in regulations for crypto exchanges last November 2019. Financial regulators worldwide have been debating for a while just how and if they should regulate cryptocurrency or virtual assets firms.

The announcement was made by Ashley Alder, Chief Executive of the Hong Kong SFC in his speech at the Hong Kong FinTech Week 2019. Following his speech, the SFC also published a new regulatory approach to “virtual asset trading platforms,” on its website.

The approach was announced as technology-neutral—Alder said that the Hong Kong regulator had been contending with the growing list of issues, including the application of existing regulations in the “context of increased automation and the adoption of artificial intelligence and machine learning.”

The new standards set by the SFC for opt-in regulation—seek to address regulatory concerns regarding custody, know-your-client (KYC) requirements, anti-money laundering (AML), and counter-financing of terrorism (CFT) and others for trading crypto.

Although the SFC is open to supervising crypto exchanges, it has made clear that “the virtual assets traded on the platforms are not subject to the authorization or prospectus registration provisions that apply to traditional offerings of “securities” or “collective investment schemes.”

OSL Digital Securities are among a slew of other digital asset firms that welcome regulation as they wish to service the mainstream financial markets. So far no other crypto asset firm has been granted approval from the HK SFC.

According to Reuters, BC Group CEO Hugh Madden said that one benefit of being licensed was that regulated institutions would be able to reduce their risk by being able to engage with other regulated entities.

Why Hong Kong Will Be a Leading Digital Asset Trading Centre in Asia

Hong Kong will be a leading Digital Asset Trading Centre in Asia. What precisely the Hong Kong Government and the Securities and Future Commission (SFC) have done for this period.

The Hong Kong Monetary Authority (HKMA) has granted eight virtual bank licenses and has been offering service since 2020. A breakthrough in the account opening procedure is customers only shoot a photo through their mobile and send it to the bank. The financial world highly appraises the banking and financial control system in Hong Kong. Know Your Customer (KYC) procedure in the Hong Kong Banking system has been criticized as an “old school method” and no flexibility in dealing with customers. Criticism does not mean losing control, but it should think more different ways of using technology in offering more competitive service to potential customers. Potential a new client base will be the Greater Bay Area with 100 million population customers.

SFC already pointed out Bitcoin is defined as a “commodity”, and it is legal to buy and sell Bitcoin in HK. However, in China, it is still vague to depict the Bitcoin legal status in monetary and financial position. Although it had cases in Shanghai by the court to point out that Bitcoin is an asset, no future explanation to define its legal status. Therefore, Bitcoin has its legal situation; it is still a question mark? In the US, Bitcoin has been recently described as “currency” in Washington state court.

In May, SFC has approved the first Digital Asset Management Company in HK. Regulated digital asset funds will launch out in the market soon. “Regulated” means investors are under SFC protection. By law, the asset management company submits a monthly financial report to SFC for supervision.

In August, SFC granted two security token (STO) exchange licenses. BC Group (stock code 863 HK) is one of them, and its stock price has been increased nearly a double for the past six months. It has reflected investors are very positive on a technology company in the digital asset business. The company is now offering education on what is digital assets and their risks to customers through a commercial radio program.

With STO, it will provide more and more liquidity channels for SME or estate building projects. Singapore has a regulated STO exchange as well, but the feedback is not very good, and so far not many companies are traded there.

In 2019 SFC report showed that Asset Under Manage (AUM) under HK was HK$$28,769 Billion, which highlighted a 20% increase in AUM and a 15% increased in domicile SFC authorized funds. It shows a huge potential of investors and fund managers are ready.

With full support by regulated banking services, asset management companies and security token exchange platforms, HK will be a leading Digital Asset Trading Centre in Asia.

Alex Yuen, Director

Asia Digital Asset Financial Ltd.

Hong Kong Securities Regulator Aims to Tighten Digital Asset Regulations Later This Year

The CEO of the Hong Kong Securities and Futures Commission (SFC) recently stated that security tokens must be regulated by the regulatory authority. The Hong Kong SFC, responsible for regulating the securities and futures markets in Hong Kong, previously approved the first crypto fund in the city in April 2020.

This time last year, Ashley Alder, the CEO of the Hong Kong SFC published a new regulatory approach for virtual asset trading platforms for the financial hub. During this year’s Hong Kong FinTech Week held virtually, Alder stated that the regulatory commission will continue to support the development of financial technology, to improve consumer experience and increase the efficiency of the sector.

However, as highlighted by Alder, many financial products have been sold via social media platforms, and transactions have been carried out remotely. Under the current regulations, financial products sold on online platforms are not considered to be securities and are not subject to the supervision of the Hong Kong SFC.

The Hong Kong SFC aims to revise the current regulations, where even if the product does not meet the definition of a securities product if the product is sold online and aimed for the Hong Kong market and the city’s consumers, these assets will still be regulated.

Going forward, Alder says that the issuer of the products will need to apply to the Hong Kong Securities and Futures Commission for the related sales of the products. The Hong Kong SFC will then take into consideration the applicant’s resources, experience, and other factors for the subsequent approval. Alder aims to tighten the regulation surrounding virtual assets and to level the playing field.

He noted that recently, security tokens have been an emerging product in the industry, and the SFC aims to supervise the transactions of the security tokens in both the primary and secondary markets. Alder highlighted that the new level of supervision and regulation, it can prevent money laundering and terrorist financing activities. Later this year, we can expect a new virtual asset regulatory system, according to Alder.

As the Hong Kong Monetary Authority, the city’s de facto central bank has also been looking into developing a central bank digital currency (CBDC), Alder announced that the regulatory authority will closely monitor its development and the impact of cloud computing in the financial market.

Hong Kong Regulator SFC Warns ICOs as Unauthorized Investment Schemes

The Hong Kong Securities and Futures Commission (SFC) has issued a warning to the public in relation to market arrangements that woos investors dubbed Collective Investment Schemes (CIS).

According to the commission, these investment schemes ranges from real estate or non-conventional assets and offerings such as digital tokens and Initial Coin Offerings (ICO), whether they are offered by homegrown firms or foreign firms.

The advent of the coronavirus pandemic and its dragging impacts on the global financial ecosystem stirred the demand for investment options rather than bonds and other safer options. With interest rates touching 0% for most economies, investors sought alternatives in high paying offerings, especially in the digital currency world. The cryptocurrency ecosystem has become enticing to all, including Hong Kong residents, from token issuance through ICOs, Initial Decentralized Offerings (IDOs) or Initial Exchange Offerings (IEOs).

According to the SFC, no issuer or firm looking to offer any proscribed investment options without proper registration with the commission. In cases required also, licenses must also be obtained before offering such services to the public.

“Unauthorised investment arrangements are highly risky, and investors may lose all their investments,” said Ms Christina Choi, the SFC’s Executive Director of Investment Products. “Investors are urged to check the new alert list and find out whether the arrangement is authorised by the SFC before investing.”

Connecting digital currency investment activities to broad losses is not uncommon in today’s advanced digital ecosystem. For two years straight, Australia’s ScamWatch has often reported a sustained trend in which the citizens lose an enormous amount of funds to unregulated firms offering unapproved investments.

The latest report revealed that Australians lost a total of $70 million to crypto scams in the first half of 2021, with estimated more losses by year-end. This trend is one of the core scenarios the SFC seek to avoid.

Huobi Tech Files to List Crypto ETF Product in Hong Kong

Retail investors with a capital base of at most HK$8 million (US$1 million) will soon be able to gain exposure to a crypto-based Exchange Traded Fund (ETF) product as the Huobi Tech asset management firm has reportedly filed for such a product with the Securities and Futures Commission (SFC).

Huobi Tech, an independent asset manager with no affiliation with the cryptocurrency trading outfit, Huobi Global, is riding on the recent allowance granted by Hong Kong authorities to extend the accessibility to regulated crypto ETF products beyond the reach of only professional traders or investors.

To get “all the trading and redemption done directly in Hong Kong … would give better protection to investors, as the fund will be regulated under Hong Kong law,” said Huobi Tech’s senior vice-president Romeo Wang, without commenting on Huobi’s application. “We will keep close and positive communications with regulators including the SFC” to “obtain the proper licences and approvals.”

The demand for related crypto products is growing at a fast pace the world over. The permission by the Hong Kong authorities to permit the trading of these unique ETF products is a sign that the government’s focus is essentially on powering the growth of these developing asset classes across the board.

Cryptocurrencies are still considered relatively volatile and risky as an investment asset. Many regulators, including the United States Securities and Exchange Commission (SEC), have not approved a full-fledged spot Bitcoin ETF product, with a slew of rejections.

Even though ProShares and VanEck are actively managing Bitcoin futures-based ETF as approved by the SEC, the more conservative investors are still awaiting a full-fledged Bitcoin or spot crypto ETF, a milestone that the SFC has proven to be well ahead of the US regulator per its recent disposition.

Regulator in Hong Kong Warns Users Against NFT Trading Risks

The Securities and Futures Commission (SFC) of Hong Kong has stepped up its awareness campaign and this time, it is in relation to the risks inherent in the trading of Non-Fungible Tokens (NFTs).

As announced by the regulator, the trading of NFTs has soared in recent times with more Hong Kong residents getting aboard the bandwagon. The commission is admonishing investors not to participate in the trading of digital collectables if they do not fully understand the associated risks therein.

“The Securities and Futures Commission (SFC) wishes to remind investors of the risks associated with investing in non-fungible tokens (NFTs), which have increased in popularity in recent years,” the announcement reads, “As with other virtual assets, NFTs are exposed to heightened risks, including illiquid secondary markets, volatility, opaque pricing, hacking, and fraud. Investors should be mindful of these risks, and if they cannot fully understand them and bear the potential losses, they should not invest in NFTs.”

The SFC noted that NFTs are growing in popularity in Hong Kong and there are a number of NFTs that purely represents the digital representation of an underlying asset and in which case, it has little role to play in the trading of those assets. However, the regulator said there are NFTs that are portrayed as securities and these types must be licensed before it is offered to residents.

“The majority of NFTs which the SFC has observed are intended to represent a unique copy of an underlying asset such as a digital image, artwork, music, or video. Generally, where an NFT is a genuine digital representation of a collectable, the activities related to it do not fall within the SFC’s regulatory remit,” it said adding,

“However, the SFC has recently noted NFTs which cross the boundary between a collectable and a financial asset, for instance, fractionalised or fungible NFTs structured in a form similar to ‘securities,’” in which case is required to be authorized.

Jonathan Cheong, legal and compliance officer at Bybit, believed the SFC’s concern is “critical and revolves around when an NFT becomes a financial instrument,” as NFT issuers have creatively used NFTs to represent underlying legal interests and rights in a variety of assets.

“Depending on the asset class and the structure of representation, the NFT in question can constitute a financial instrument. However, it should be pointed out that once an NFT is made ‘fungible’ or ‘fractionalized’, it is no longer a non-fungible token and becomes simply a cryptocurrency, which may amount to a financial instrument.”

Cheong suggested customers purchasing NFTs always conduct due diligence and inquiry into the underlying asset that backs the NFT and how the legal representation of the asset is reduced into the smart contract of the NFT.

Non-Fungible Tokens are continually becoming a major source of concern to regulators as there are no frameworks that govern them even in countries where crypto regulations are quite developed.