Hong Kong’s securities regulator The Securities and Futures Commission or SFC, has warned investors on the risks associated with virtual asset arrangements claiming to offer returns to investors.
The SFC states that these virtual asset platforms offer deposits, savings, earnings or staking services to investors in Hong Kong. Some of these platforms also offer a high “interest rate” on virtual asset deposits or a daily generation of additional virtual assets at a guaranteed or fixed rate to investors.
However, the SFC reminds the industry of the potential legal requirements when they offer virtual assets to investors in Hong Kong. The regulator adds that it is an offence to offer virtual asset products targeting Hong Kong investors without an SFC license unless an exemption applies.
These investors are not provided any form of protection for their investments as the products are not registered or unregulated and are not the same as bank deposits.
According to the SFC, the virtual assets deposited by investors with platforms may then be on-lent to borrowers on other platforms or decentralized lending protocols or used in investment or other activities. Some platforms may also offer staking services to investors where investors’ virtual assets may be delegated to a staking pool to earn staking rewards for investors.
The SFC warned that investors may suffer significant or even total loss, especially in the event of fraud or collapse of a virtual asset platform as evident in the recent fallout of a number of virtual asset platforms.
The regulator urges investors to be wary of the potential high risks associated with virtual asset arrangements, and not to make an investment if they cannot fully understand them and bear the potential significant or total losses.
The SFC noted that it takes breaches of the Securities and Futures Ordinance seriously and will take robust enforcement action promptly to safeguard investors’ interests.
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