Hong Kong Regulator Directs Cryptocurrency Exchanges To Delist Securities Tokens

  • Hong Kong's securities regulator sent 7 of the top 20 cryptocurrency exchanges letters asking them to delist tokens deemed securities
  • It further revealed investors have sent in complaints regarding ICOs, and sent letters to seven ICO issuers
  • The regulator advised investors not to invest if they aren't prepared to lose their funds

Hong Kong’s Securities and Futures Commission (SFC) recently revealed that it sent letters to seven cryptocurrency exchanges, warning them that some of the tokens they listed could be classed as securities, as defined in the Securities and Futures Ordinance (SFO). Without a license, these cryptocurrency exchanges aren’t allowed to trade these tokens.

The SFC didn’t disclose the names of the cryptocurrency exchanges, but revealed they are either based in or connected to Hong Kong, and among the top 20 by trading volume. After the announcement, most of the contacted exchanges either confirmed they didn’t trade these tokens, or delisted said tokens.

The regulator notes that it may take further action against cryptocurrency exchanges that don’t comply, and against those who are “repeat offenders.” Moreover, it revealed that it wrote to seven initial coin offering (ICO) issuers, most of which confirmed they were complying with the region’s regulations.

Those who didn’t, per the SFC, ceased to offer their tokens to Hong Kong-based investors. The regulator warned it is closely monitoring the ICO space, and will “not tolerate any violations of the securities laws of Hong Kong.”

SFC’s Chief Executive Officer Ashley Alder stated:

“We will continue to police the market and enforce when necessary. But we are also urging market professionals to do proper gatekeeping to prevent frauds or dubious fundraising and to assist us in ensuring compliance with the law."

Ashley Alder

The regulator further revealed that investors have complained they were unable to withdraw fiat currencies from accounts they had opened at cryptocurrency exchanges. Some complaints even claimed the exchanges misappropriated their funds, or manipulated the market. Others pointed to technical breakdowns that led to significant losses.

Regarding ICO issuers, various complaints alleged they were unlicensed or were engaging in fraudulent activities. In response to these complaints, the SFC’s Executive Director, Julia Leung, warned that if investors aren’t prepared to lose their funds, they shouldn’t invest in ICOs.

She said:

"If investors cannot fully understand the risks of cryptocurrencies and ICOs or they are not prepared for a significant loss, they should not invest. Investors who store their fiat currencies and cryptocurrencies with unregulated cryptocurrency exchanges should be aware of the risks of hacking and misappropriation of assets."

Julia Leung

Investors were also warned about the price volatility ICO-related tokens may have, the dangers of being hacked, and fraud. When any of these occur, it may be hard for the regulator to take action and recover the funds.

Further, it may not have jurisdiction to protect investors if the exchanges or ICO issuers have no nexus in Hong Kong.

Canadian Financial Regulators Take Action Against Einstein

On Monday (November 4), the British Columbia Securities Commission (BCSC) announced that it had taken action against the Vancouver-based Einstein Exchange.

The BCSC is an independent (self-funded) provincial government agency that reports to the Legislative Assembly of British Columbia (aka "BC Legislature") through the minister responsible for the administration of Canada's Securities Act. 

Via a press release issued on November 4, the BCSC reported that on November 1 it had applied to the Supreme Court of British Columbia for "an order appointing an interim receiver to preserve and protect any assets of Einstein Exchange," and that the Court had "granted the application and appointed Grant Thornton Limited as interim receiver." 

The Einstein Exchange's domain (einstein.exchange) seems to have been seized since the firm's website is no longer accessible. The exchange's customers are advised to send email to "[email protected]" or to visit Grant Thornton's website for information about their accounts, the exchange, or the receivership.

According to the papers filed in court, the BCSC took action against Einstein Exchange after getting many complaints by customers who were having difficulty in getting access to their funds on the custodial exchange. On October 31, the BCSC was "told by a lawyer representing the trading platform that it planned to shut down within 30 to 60 days due to a lack of profit." The Einstein Exchange apparently owes its customers CAD 16.3 million (roughly USD 12.4 million).

Accounting/consulting firm Grant Thornton took control of Einstein's premises on November 1.

The BCSC also pointed out that it "has not authorized any crypto-asset trading platforms to operate as an exchange."

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