Steven Millward 4:52 PM at Sep 6, 2017

Hong Kong’s financial regulator has warned that the unchecked boom in startups raising money from ordinary people via token sales needs to be controlled.

These “initial coin offerings” – ICOs for short – have raised US$1.5 billion so far this year, says CoinDesk data. And yet the entire system, unlike with IPOs, is unregulated.

But Hong Kong’s Securities and Futures Commission (SFC) yesterday stated that the digital tokens distributed in ICOs may be classified as “securities” and thereby subject to securities laws that demand transparency from companies and provide some safeguards for investors.

“Whilst digital tokens offered in typical ICOs are usually characterised as a ‘virtual commodity,’ the SFC has observed more recently that certain ICOs have terms and features that may mean that they are ‘securities,'” it said.

So ICOs that involve ownership rights, dividend rights, or owe a debt to the holder will fall under securities laws and the regulation of the SFC. Secondary trading of tokens from ICOs should also fall under its remit, stated the body.

Hong Kong’s tightening of the screw comes one day after mainland China’s central bank issued a blanket ban on ICOs.

Hong Kong’s scrutiny of ICOs will spook Chinese startups that hoped to raise funds over the border instead.