The Hong Kong Securities and Futures Commission (SFC) recently issued a warning to investors about the risks of NFTs and the consequences they carry for those that do not do their research.
While an NFT is a genuine digital representation of a collectible, the activities connected with it are not regulated by the SFC, according to the NFT risk warning.
SFC Elaborates on NFT Security Risks
According to their official risk warning, “As with other virtual assets, NFTs are exposed to heightened risks, including illiquid secondary markets, volatility, opaque pricing, hacking, and fraud. Investors should be mindful of these risks, and if they cannot fully understand them and bear the potential losses, they should not invest in NFTs.”
“The majority of NFTs observed by the SFC are intended to represent a unique copy of an underlying asset such as a digital image, artwork, music or video.”
However, the SFC’s primary focus is on the securitization of NFTs and how they can make it safer for investors to know that their bought digital assets are not scams.
Those under their jurisdiction include financial holdings and digital collectibles.
SFC Requests Owners to Have a License
Organizations that conduct certain activities in Hong Kong must obtain a license from the SFC before contacting residents.
These activities include dealing in securities, advising on securities and providing automated trading services. The SFC said it will “closely monitor” the NFT market and may take further actions if necessary.
This is not the first time that regulators have issued warnings about NFTs.
In February, the US Securities and Exchange Commission (SEC) warned investors that NFTs could be “unregistered securities” and that some platforms trading them may not follow US securities laws.
The Canadian Securities Administrators (CSA) also published a notice cautioning investors about the risks of investing in NFTs, including their lack of regulation.
NFTs have exploded in popularity, with major companies and celebrities getting involved in the space.