Compliance Corner: Hong Kong's SFC

Editorial Staff, 19 July 2021


The latest compliance news: regulatory developments, punishments, guidance, permissions and new product and service offerings.

Hong Kong SFC
The Securities and Futures Commission announced last week that no entity in the Binance group is licensed or registered to carry out regulated activity in Hong Kong, citing concerns about trading in stock tokens. Italy and the UK have also acted against the business.

Cryptocurrency exchange Binance has been banned from operating in the UK by the country’s markets regulator, in the latest sign of a growing crackdown on the crypto market around the world.

Stock tokens are virtual assets that are represented to be backed by different depository portfolios of underlying overseas listed stocks, with their prices closely tracking the performance of the respective stocks.  As stock tokens can be denominated in fractional units, they are being promoted as an alternative means for investors to purchase fractional shares instead of the entire fully paid-up shares, the SFC said in a statement. 

In Hong Kong, stock tokens are likely to be “securities” under the Securities and Futures Ordinance and, if so, they are subject to the regulatory remit of the SFC.

“The SFC warns that where the stock tokens are `securities’, marketing and/or distributing such tokens – whether in Hong Kong or targeting Hong Kong investors – constitute a `regulated activity’ and require a licence from the SFC unless an applicable exemption applies,” it said. 

It may also be an offence for any person to offer such tokens to the Hong Kong public without the SFC’s authorisation or registration.  Any person who contravenes a relevant provision may be prosecuted and, if convicted, subject to criminal sanctions, the SFC said. 

“Investors are urged to be extremely careful if they plan to invest in stock tokens offered on unregulated platforms. If a platform is unregulated, there may not be any due diligence or audit conducted by an independent third party to confirm the truthfulness of the representation that the relevant stock token is actually backed by an equivalent depository portfolio of the underlying share,” it added. 

Also, in Italy and the UK, regulators of other countries, including the US, Japan, Thailand, Poland, and the Cayman Islands, have warned about the exchange, or acted against it (source: The Block, 15 July).

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