Coin offering fraud feared

Business | Tereza Cai 31 May 2019

The Securities and Futures Commission is concerned about fraud in the initial coin offering, trading, and sale of cryptocurrency assets, said Thomas Atkinson, an executive director with responsibility for the enforcement division of the SFC.

He added the structure of some exchanges is beyond the scope of the SFC, and it is working with compliance and legal experts to discuss how to supervise cryptocurrency entities. He believes cryptocurrency is currently still the "buyer beware" market.

The commission said in March that security tokens are "likely to be 'securities'" under Hong Kong's Securities and Futures Ordinance, and thus fall under existing securities laws, the violation of which is a criminal offense.

Meanwhile, the SFC reprimanded China Merchants Securities (HK) and fined it HK$5 million for regulatory breaches and internal control failings related to mishandling of client money.

The SFC found that there were about 800 incidents between October 1, 2011 and September 30, 2014, where China Merchants transferred funds ranging from HK$68,000 to HK$308 million from client trust accounts for purposes other than those specifically allowed by the Securities and Futures (Client Money) Rules (Client Money Rules).

China Merchants also failed to employ fit and proper staff to conduct its business, and have proper internal controls and procedures in place to ensure compliance with the Client Money Rules and safeguard client assets, the SFC said.

Since safe custody of client assets is a fundamental obligation of licensed corporations, any transgression of this obligation, even if clients' funds were subsequently returned to the client trust account on the same day, cannot be tolerated, the commission said.

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