NFT Marketplace Regulation in Hong Kong: Legal Framework

What Is an NFT Marketplace?

An NFT (non-fungible token) marketplace is a platform that facilitates the creation, listing, buying, selling, and trading of non-fungible tokens. Unlike fungible cryptocurrencies such as Bitcoin or Ether, each NFT is unique and represents ownership of a specific digital or physical asset — whether a piece of digital art, a collectible, a music track, a gaming item, or a real-world asset.

Prominent global marketplaces include OpenSea, Blur, and Rarible, but Hong Kong has also seen the emergence of local and regional platforms targeting Asian collectors and creators. The legal status of these platforms — and the NFTs they list — is one of the most actively debated questions in Hong Kong's financial regulation landscape.

Are NFTs Regulated in Hong Kong?

The Securities and Futures Commission (SFC) has indicated that the regulatory treatment of an NFT depends on its specific characteristics rather than its label. Not all NFTs are regulated; the regulatory analysis turns on whether the NFT constitutes a “security” or an interest in a “collective investment scheme” (CIS) under the Securities and Futures Ordinance (SFO).

Pure Collectible NFTs: NFTs that are unique digital artworks or collectibles — where the token simply represents ownership of a digital item with no investment component — are generally not considered securities. A digital artwork NFT whose value is driven by aesthetics and cultural significance, rather than expectations of profit from the efforts of others, would typically fall outside the SFO's definition of a security.

Fractionalized NFTs: Where an NFT is divided into fungible fractions that are offered to multiple investors, the fractions may constitute a CIS under the SFO, as investors pool their contributions and their returns depend on the management of the underlying NFT asset. Fractionalized NFT offerings must be carefully structured to avoid falling within the CIS regime without appropriate authorisation.

NFTs with Profit-Sharing Features: NFTs that confer rights to a share of revenue, royalties, or profits — for example, an NFT that entitles the holder to a percentage of streaming revenue from a music track — are likely to be characterised as securities (specifically, a debenture or investment contract) under the SFO. Offering such NFTs to the public would require compliance with Hong Kong's securities laws.

Virtual Asset Trading Platform (VATP) Licensing and NFTs

Under the VATP licensing regime effective June 2023, platforms that facilitate trading in “virtual assets” are required to apply for a licence from the SFC. The SFC has indicated that NFTs representing non-security collectibles may not constitute “virtual assets” for the purposes of the VATP regime, as the regime is primarily targeted at fungible virtual assets.

However, if a platform trades both fungible virtual assets and NFTs (particularly those with security-like characteristics), the platform may need to hold both a VATP licence and the SFC licences required for dealing in securities. The specific licensing requirements will depend on the mix of assets traded and the nature of the platform's operations.

Money Service Operator (MSO) Considerations

NFT platforms that facilitate payments in fiat currency may need to consider whether their activities require registration as a Money Service Operator (MSO) under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). MSO registration is required for businesses providing money changing or remittance services, and fiat currency payment processing on an NFT marketplace may engage this requirement depending on the structure of the service.

Consumer Protection and IP Issues

Beyond financial regulation, NFT marketplace operators must consider consumer protection, intellectual property, and contract law obligations. Platforms must have clear terms of service addressing the scope of rights transferred with NFT ownership (typically a limited licence to the digital content, not copyright ownership), refund and dispute resolution procedures, and their responsibilities in relation to counterfeit or infringing content listed on the platform.

The Copyright Ordinance (Cap. 528) applies to digital content in Hong Kong, and NFT platform operators may be exposed to secondary liability for copyright infringement if they host or facilitate the sale of infringing NFTs and fail to implement adequate takedown procedures.

AML/KYC Obligations for NFT Platforms

Even where an NFT platform is not required to hold an SFC or VATP licence, best practice dictates robust AML/KYC procedures. The FATF's guidance on virtual assets and VASPs includes NFT platforms within its scope where NFTs are used for payment or investment purposes, and Hong Kong's JFIU expects regulated entities and their counterparties to apply risk-based AML/CTF controls.

How Alan Wong LLP Can Help

Alan Wong LLP advises NFT marketplace operators, creators, and collectors on the regulatory classification of NFTs, licensing requirements for platform operators, intellectual property protection, terms of service, and AML/KYC compliance. We help businesses navigate the rapidly evolving legal landscape for NFTs in Hong Kong and develop robust legal frameworks for their platforms and product offerings. Contact us to discuss the legal requirements for your NFT business.