HK Government Watchdog Adds NFTs and Metaverse to Watchlist

There’s been no shortage of crypto regulatory chatter since the start of the year. While the markets have become accustomed to regulators investigating and fining crypto trading platforms, NFTs and the Metaverse have become the latest area of regulatory focus.

An upward trend in illegal activity and concerns over the use of NFTs and the Metaverse to fund illegal activity and facilitate money laundering have drawn government attention.

The situation has become so severe that even the White House is about to issue an executive order to task agencies with increased regulatory scrutiny in the interest of national security.

South Korea’s Financial Supervisory Service (FSS) Gets Active

Just this morning, we reported on South Korea FSS’s plans to tighten the monitoring of newly traded assets. These are to, not only include NFTs, but give authority to oversee the Metaverse.

The South Korean government has been clear that crypto criminals will feel the full force of the law and the courts.

Beijing has also been clear on its stance on cryptos, crypto mining, NFTs, and the Metaverse. In spite of warnings from the Chinese government and China’s central bank, the People’s Bank of China (PBoC), interest in NFTs and the Metaverse has surged.

As we saw with crypto mining, however, patience wears thin. China was once the largest Bitcoin (BTC) mining nation, accounting for more than 70% of the global Bitcoin hashrate, at its peak.

This fell to zero following the government’s ban. China’s central bank has also been sending out warnings over NFTs and the Metaverse that suggest action is imminent.

The PBoC’s AML unit has stated that the Metaverse and NFTs provide a pathway for illegal activities. It, therefore, comes as little surprise that Hong Kong is beginning to send similar messages and increase regulatory scrutiny.

HK Issues Warning on NFTs and the Metaverse

Last Thursday, the Hong Kong Computer Emergency Response Team Coordination Centre (HKCERT) issued a lengthy press release. For 2022, the HKCERT announced five “must watch” security risks for 2022. At the top of the list, were NFTs and the Metaverse. According to the press release:

“NFT and metaverse involve new type of virtual asset storage, huge volume of transactions and large amount of data exchange. Hence, information security of their related networks will receive more attention”.

2^nd on the list came cryptocurrencies. According to the press release:

“As the value of cryptocurrencies and related markets continue to escalate and expand, criminals may seize opportunity to steal sensitive user information, accessing their accounts and transferring currency to other accounts, or even using the information for other malicious purposes”.

HKCERT added that “both individuals and enterprises must continue to improve their information security awareness and response capability”.

The message points to greater regulatory scrutiny in the months ahead. It remains to be seen, however, whether there will be an outright ban on one or both.