Hong Kong’s Securities Regulatory Commission warned investors of the risk related to investment in non-fungible tokens (NFTs). The Securities and Futures Commission’s (SFC) this move has amid the recent increase in the hacks and frauds in the NFT ecosystem.

Involved investors need to be aware of risks

The SFC mentioned that as with other virtual assets, NFTs are also exposed to many risks involved in the market. These digital assets carry higher volatility including a lack of liquidity in the secondary market, price transparency, and scams. It added that investors should be aware of it. They should avoid trading in them if they cannot understand them and bear the possible loss.

As per the release, the regulator observes most of the NFTS represent the unique version of an underlying asset. It can be digital artwork, image, music or a video. However, it mentions that these tokens are a unique digital depiction of a collection, the activities around do not fall under the authority’s supervision.

The SFC’s comments come amid the regulator’s plan to draft more comprehensive regulation on cryptocurrencies.

SFC differentiates between NFTs

Earlier, the SFC noted that some non fungible tokens have different characteristics. It differentiates between a collectible and a financial asset like fractionalised or fungible NFTs structured the same as securities. Or will it fall under a “collective investment scheme” (CIS).

Any entity involved in the activity needs a license from the SFC unless there is an exemption. It added that the party can be from Hong Kong or anyone targeting the nation’s investors.

The SFC also dropped waring for the offer under CIS. Any NFT based arrangement offered to nation’s investors will trigger authorisation requirements under the SFO. Meanwhile, Hong Kong is hosting the biggest NFT exhibition. It is entitled ARTVERSE. Giants like Animoca Brands, Alpacadabraz and RAZE are participating in the event.

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