Hong Kong regulator cautions on ICOs, halts Black Cell raise

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Hong Kong’s Securities and Futures Commission has recently halted an initial coin offering (ICO) launched by Hong Kong-based Black Cell Technology Limited and ordered the issuer to refund its investors, marking the first time a Hong Kong regulator has blocked this new means of fundraising.  

Black Cell Technology was reportedly planning to use the proceeds from the sale to support a mobile apps called Krops, which is a marketplace that connects buyers to crop and livestock producers. The company claimed investors would be eligible to redeem equity shares of the company.  

Such fund-raising activity constitutes a Collective Investment Scheme that triggers “a prior authorization or licensing requirements,” the SFC said in a statement, while reminding investors to exercise extra caution before participating in an ICO.  

An ICO, a mechanism that is usually easier to raise funds than the more traditional venture capital route, became a popular way for startups to raise capital since last year. ICO issuers offer digital tokens to investors, normally in exchange for another cryptocurrency, such as Bitcoin or Ethereum.  

Regulators worldwide have been raising concerns about ICOs and cryptocurrencies in general. For instance, the Japanese government told Hong Kong-based Binance last month to stop operating in the country without a license. Binance, founded last year in Hong Kong by Zhao Changpeng, was targeted by Japan’s Financial Services Agency due to its several staff located in Japan and expanding in the country without a license.  

Meanwhile, Switzerland-based Bank for International Settlements (BIS) said on March 13 that digital coins “remain far too risky to be used as legal tender any time soon,” and that they might destabilize traditional lenders. The BIS also highlighted that digital currencies could fall victim to illegalities, either as a direct target or a means of transaction.   

“General-purpose central-bank digital currencies could revolutionize the way money is provided and the role of central banks in the financial system, but these are uncharted waters,” said Benoit Coeure, a European Central Bank board member who chairs the BIS Committee on Payments and Market Infrastructures.   

Coeure added that a lot more experiments and experience are required before central banks could consider issuing their own digital currencies. 

But despite all the warnings and cautions from regulators, ICOs continue to boom. The industry raised about US$1.7 billion in the first two months of this year alone and is on track to surpass last year’s tally.  

Part of the reason ICOs is gaining more popularity is down to the fact that cash might be losing its role as a major exchange of values, Ivan Lee, director of Banking and Financial Services from Tata Consultancy Services, told Harbour Times.  

“Taking the U.S. as an example, cash accounts for merely 14% of total transaction value nowadays. In Sweden, it’s around 2%. Digital coins and cryptocurrency could be a good alternative as a transaction vehicle to governments & central banks,” said Lee. 

“But of course there are a lot of considerations and issues regulators need to think about before cryptocurrencies could be adopted in more ways. The fact that crypto exchanges are run offshore makes them more complicated in nature. As a result, security is more of an issue for such industry. Hacking and theft of such digital coins have been reported in recent months and more might come in the future. In addition, we need to consider the impact to the traditional monetary system as well. More education regarding the risk associated with digital coins should be offered to the public as well,” Lee added. 








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