The Securities and Futures Commission of Hong Kong (SFC) reminds investors of the risks associated with virtual asset arrangements, including services such as "deposit", "deposit", "yield" or "pledge" of virtual assets. In addition, the SFC reminded the industry to be aware of potential legal requirements when offering virtual asset arrangements to investors in Hong Kong.

Certain platforms may offer high "interest rates" to investors on virtual asset "deposits" or generate additional virtual assets for investors on a daily basis at guaranteed or fixed interest rates, the CSRC said. Virtual assets deposited by an investor on the Platform may then be lent by the Platform to other platforms or to borrowers under the decentralised lending protocol, or used for investment or other activities. Some platforms are more likely to offer a pledge service to investors, whereby their virtual assets can be entrusted to a pledge pool to earn a pledge reward for investors.

The SFC wishes to remind investors to be aware of the significant risks associated with investing in such virtual asset arrangements. In particular, in the event of fraud or failure of virtual asset platforms, investors can suffer significant or even total losses, as seen in the recent shock brought about by the collapse of multiple virtual asset platforms.

Although some virtual asset arrangements are often labeled or promoted as "deposit" or "savings" products, they are not regulated and are not equivalent to bank deposits. Investors are not protected in any way.

The vast majority of virtual asset platforms that offer virtual asset arrangements are not regulated. Their operations may lack transparency and their fit and proper qualifications, including their financial soundness and competence, are not subject to any regulation, such as prudential regulation. In particular, if the virtual asset platform or the counterparty to which the virtual asset is loaned ceases to operate, goes out of business, is hacked or is involved in fraud, investors may not be able to retrieve the virtual asset from their account and risk losing their entire investment held on the platform.

Virtual assets are subject to high risks, including illiquidity, large price fluctuations, lack of pricing transparency, potential market manipulation, hacking and fraud, and the potential loss of all value.

If the investors of certain virtual asset arrangements do not have day-to-day control over the management of their virtual assets and the virtual assets are pooled and/or managed by the operators as a whole for the purpose of generating returns for investors, these arrangements may constitute collective investment schemes as defined in the SFO. The virtual asset arrangement may be a non-approved collective investment scheme and may be of high risk. The product will not be approved by the SFC and its offering and marketing publications will not be reviewed by the SFC. Investors will not be covered by the SFO.