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SFC’s First ICO Regulatory Action

  • Hong Kong
  • China
  • Financial services and markets regulation
  • Financial services disputes and investigations


The Securities and Futures Commission (the “SFC”) has for the first time publically announced that regulatory action has been taken in respect of an initial coin offering (the “ICO”). The ICO issuer, Black Cell Technology Limited (“Black Cell”) has halted the ICO, following the SFC regulatory intervention regarding “concerns that Black Cell had engaged in potential unauthorised promotional activities and unlicensed regulated activities”.

The SFC regulatory action has led to an immediate halt of the ICO activity of Black Cell to the Hong Kong public and Black Cell has agreed to refund Hong Kong investors who have taken part in the ICO. According to the ICO’s website, Hong Kong investors have until 29 March 2018 to notify the ICO for their refund.

The SFC regulatory action on the ICO follows the cease and desist order issued on 9 January 2018 by the Philippines authority on the ICO and its related companies which banned all activities of the ICO in Philippines until the requisite registration under the Philippines regulations has been filed and the relevant licences have been issued.

The SFC stated that “holders of the tokens would be eligible to redeem equity shares of Black Cell” which the SFC considered “may constitute a collective investment scheme (“CIS”). Offering interests in a CIS in the public in Hong Kong generally requires prior authorisation from the SFC unless a relevant exemption applies. The SFC issued a statement on 5 September 2017 emphasising that the offering of digital tokens could constitute regulated activities in Hong Kong which, in the absence of the requisite licences or authorisations could trigger enforcement actions. For further details, please refer to our briefing.

The SFC “once again alerts investors to the potential risks of dealing with cryptocurrency exchanges and investing in initial coin offerings” and we anticipate that the SFC will continue to step into other ICOs where they determine that regulatory actions would be appropriate.

We would urge all ICO issuers with existing ICOs or upcoming ICOs who are looking to raise funds in Hong Kong to consult their legal advisers and to review the characteristics and features of their tokens against securities laws and regulations in Hong Kong to ensure that compliance is achieved at the outset.