Hong Kong Securities Watchdog Delivers a Stark Warning on ICOs

Jordana Sacks

In a speech given on Friday, Hong Kong’s securities regulator made it clear that they had adopted a sceptical view of initial coin offerings (ICOs). 

Talking at an investment industry function, the deputy head of the Hong Kong Securities and Futures Commission (SFC), Julia Leung, delivered a stark warning, advising the public against certain fundraising activities, namely ICOS..    

Acknowledging that blockchain and its ilk had the potential to increase efficiency and promote financial inclusion, she nonetheless cautioned that this did not entitle individuals to carry out ICOs that violate securities law. 

She further warned that many ICO projects may simply be disguised as blockchain technology, whilst offering no real technological innovation and posing significant risks to investors.  

Explaining these comments, Ms Leung said:

“Further complicating matters, many of these fundraising [activities] are dubious, if not downright frauds. The issuers escape the scrutiny of the police or securities regulators because of their cross-border nature and the way the crypto assets are structured to fall outside any regulator’s permit.”

Julia Leung

This statement comes in the wake of scrutiny by the SFC of a particular ICO project, which the agency was forced to halt following worries over its offering of unregistered securities in Hong Kong. 

It has also had to step in with regards to several other exchanges in earlier incidents of a similar nature, forcing the delisting of numerous ICOs which the agency believed were more accurately classified as securities.     

This has led the SFC to implement a campaign intended to better educate the public about the technology, with their primary focus being to make people aware of the risks associated when investing in cryptocurrencies.   

As part of this drive, a media-focused campaign was launched in January. Concentrating its efforts on the region’s subway system, the SFC said that it will cool the ever-increasing hype surrounding such investments.

Global Task Force, U.S. Tax Agency, SEC Dominate Crypto Headlines

Regulations are ruling the crypto headlines so far this week. Over the past 24 hours, we’ve learnt the Financial Action Task Force (FATF) is reportedly set to finalize new international standards for regulating cryptocurrency firms next month. The commissioner of the Internal Revenue Service (IRS) has stated his agency has “made it a priority” to issue more comprehensive crypto tax guidance “soon.” Finally, the U.S. Securities Exchange Commission (SEC) announced it would delay, once again, its decision on the VanEck and SolidX Bitcoin exchange-traded fund (ETF) proposal.

At the time of writing, bitcoin (BTC) and ether (ETH) are trading at $7,945.4 and $252.9; a 0.54% and 0.83% jump over the past 24 hours, respectively. As for the MVIS CryptoCompare Digital Assets 10 Index, it is currently tracking at 3,822.7 (-0.6%).

Global Standards for Regulating Crypto Firms Next Month

According to reports from CoinDesk, the FATF is set to finalize new international standards for regulating cryptocurrency firms next month. These standards, they report, are widely expected to subject crypto exchanges, wallet providers, and other businesses to the “travel rule” – a colloquial term given to a rule found in the Bank Secrecy Act (BSA) that requires all financial institutions to pass on certain information to the next financial institution, in certain funds transmittals involving more than one financial institution.

Introduced in 1996 in the U.S., the “travel rule” is designed to help law enforcement agencies detect, investigate, and prosecute money laundering and other financial crimes by preserving an information trail about persons sending and receiving funds through funds transfer systems. The arrival of such international standards would go beyond the basic know-your-customer requirements that are widely enforced in the crypto space at present.

IRS Commissioner: More Detailed Crypto Tax Guidance ‘A Priority’

According to letter from IRS Commissioner Charles P. Rettig dated May 16, the agency has “made it a priority” to issue a more comprehensive tax guidance for cryptocurrencies. The Commissioner’s letter was written in response to a request from 21 Congressmen to provide clarity on tax treatment in relation to cryptocurrency holdings.

In 2014, the U.S. tax agency issued a guidance for cryptocurrency. In his May 16 response letter, Rettig revealed the IRS will “soon” issue more robust guidance. “I share your belief that taxpayers deserve clarity on basic issues related to the taxation of virtual currency transactions,” the Commissioner wrote.

SEC Delays Decision on VanEck SolidX Bitcoin ETF

The SEC announced the postponement of a decision regarding the VanEck SolidX bitcoin ETF proposal. The postponed ETF proposal was initially filed over a year ago. In January – amid the U.S. Government shutdown – it was withdrawn, only to be resubmitted later that month. On March 29, the commission delayed the joint proposal for the first time. The SEC must announce its decision – or, for the final possible time, postpone its decision – on the proposed bitcoin ETF no later than August 19.

Notably, the U.S. investor watchdog is seeking comments from the public in relation to the proposed VanEck SolidX bitcoin ETF. To guide commentary, they included fourteen questions in Monday’s filing. Comments must be submitted within the following 21 days, whilst rebuttals to said comments are due within the next 35 days.