NFTs and Digital Collectibles: Legal Considerations in Hong Kong

Non-fungible tokens (NFTs) — unique, non-interchangeable cryptographic tokens recorded on a blockchain — became one of the most widely discussed digital asset developments of the early 2020s, generating billions of dollars in trading volume before the market correction of 2022 significantly reduced activity. Despite the cooling of speculative interest, NFTs continue to be used across a range of applications including digital art, collectibles, gaming, sports memorabilia, music rights, and real estate documentation. For creators, platforms, investors, and buyers involved in NFTs in or connected with Hong Kong, the legal landscape is nuanced and continues to evolve.

This guide sets out the key legal considerations for NFTs in Hong Kong, drawing on the existing regulatory framework and the SFC's published guidance on digital assets.

What Is an NFT?

At a technical level, an NFT is a token recorded on a blockchain (typically Ethereum, Solana, or another programmable blockchain) that is cryptographically unique and not interchangeable with other tokens on a one-to-one basis (unlike fungible cryptocurrencies such as Bitcoin or ETH, where each unit is identical to every other unit). The NFT typically contains metadata pointing to a digital file — an image, video, audio file, or other digital object — and a record of the chain of title from minting to the current holder.

From a legal perspective, the critical questions are: what rights does the holder of an NFT actually have? And what regulatory regime applies to the creation, sale, and trading of NFTs?

Regulatory Classification: Utility Tokens, Securities, and Collectibles

The SFC's approach — consistent with its broader digital asset regulatory philosophy — is that the legal characterisation of an NFT depends on its economic substance, not its technical form. Three broad categories of NFT exist from a regulatory standpoint:

Collectible and utility NFTs: NFTs that represent unique digital artworks, collectibles, in-game items, or access rights (for example, membership tokens or tickets) are generally not "securities" under the Securities and Futures Ordinance (SFO). They are analogous to physical collectibles or access tickets. Their creation, sale, and trading is not, in itself, regulated by the SFC (though consumer protection laws and general contract law still apply). This is the most common category of NFT in the art and collectibles market.

NFTs that are securities: An NFT that confers rights similar to those of a share, debenture, or interest in a collective investment scheme may constitute a "security" under the SFO. Specific features that might push an NFT into the "security" category include: fractionalization of ownership in an underlying asset (where multiple NFTs collectively represent an interest in a single underlying asset — the SFC has specifically flagged fractional NFTs as raising security token concerns); profit-sharing rights (NFTs that entitle holders to a share of revenues generated by the creator or a project); governance rights in a DAO or protocol; or marketing that emphasises the investment return potential of the NFT. If an NFT is a security, its issuance, trading, and distribution in Hong Kong is subject to SFC regulation.

Virtual commodities: Some NFTs — particularly those with speculative market value but no cash-flow rights — may be treated as virtual commodities. Virtual commodities are not regulated as securities, but their trading may engage other regulatory regimes (including VATP licensing if traded on a centralised exchange).

The SFC has noted that the fractionalization of NFTs — splitting a single NFT into multiple fungible tokens representing fractional interests — is a particular area of regulatory concern, and has indicated that fractional NFTs may constitute collective investment schemes subject to SFC authorisation requirements.

NFTs on Licensed VATPs

The SFC's VATP licensing regime (under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, as amended in 2023) applies to centralised exchanges that facilitate trading in "virtual assets." Whether NFTs qualify as virtual assets under the VATP regime depends on the specific NFT's characteristics. The SFC has taken the view that NFTs that are primarily artistic or collectible in nature and individually unique are not "virtual assets" for VATP licensing purposes — meaning exchanges that trade only collectible NFTs may not require a VATP licence. However, exchanges that trade NFTs that are securities, or that trade both NFTs and other virtual assets, will need to hold a VATP licence for the relevant regulated activities.

Intellectual Property: What Does an NFT Buyer Actually Own?

One of the most common misconceptions about NFTs is that purchasing an NFT confers ownership of the underlying copyrighted work. In almost all cases, this is incorrect. The purchase of an NFT transfers ownership of the token record on the blockchain, not ownership of the copyright in the digital file to which the NFT points. Copyright in the underlying artwork, photograph, music, or other creative work remains with the creator (or whoever holds the copyright) unless it is expressly transferred.

The rights that an NFT buyer actually acquires depend entirely on the terms of the NFT's "smart contract" and any accompanying terms of sale. At minimum, the buyer typically acquires: the right to hold the token and to transfer it to another party; a licence to display the work for personal, non-commercial purposes; and the metadata and "provenance" information recorded on the blockchain. What the buyer does not automatically acquire: the right to reproduce the work commercially; the right to create derivative works; the right to sub-license the work; or the right to use the artist's name or likeness in connection with the work.

Several high-profile cases have illustrated the consequences of this misunderstanding. Buyers who have purchased NFTs and attempted to commercialise the underlying artwork (for example, by creating merchandise or derivative products) have been sued by the original copyright holders. Conversely, creators who have minted and sold NFTs without clear contractual terms have faced disputes with buyers who expected broader rights than were granted.

Best practice for creators: Include explicit licence terms in the smart contract metadata or in a separate publicly accessible licence document that specifies exactly what rights the buyer of the NFT acquires (and what rights they do not). Avoid ambiguity about commercial use rights, derivative works, and sublicensing.

Best practice for buyers: Before purchasing an NFT for any commercial purpose, review the licence terms attached to it. If no licence terms are provided, assume only minimal rights are granted.

NFT Royalties and Enforcement

Many NFT platforms have offered creators the ability to programme secondary sale royalties into the smart contract — meaning that when an NFT is resold, a percentage of the sale price (commonly 5-10%) is automatically distributed to the original creator. However, royalty enforcement has become a significant issue as major NFT marketplaces have moved to make royalties optional in response to competitive pressure from zero-royalty exchanges.

From a legal perspective, smart-contract-encoded royalties do not automatically constitute a legally enforceable contractual right in Hong Kong. The royalty payment is enforced by the code of the smart contract on the platform that honours it, not by Hong Kong contract law. If the buyer resells the NFT on a platform that does not enforce creator royalties, the creator typically has no contractual remedy under Hong Kong law unless the original terms of sale expressly created a legally binding royalty obligation.

Creators who wish to have legally enforceable royalty rights should include an express royalty provision in the NFT's terms of sale (not just in the smart contract) and should specify the governing law and dispute resolution mechanism.

Consumer Protection Considerations

NFT marketplaces and creators that sell NFTs to consumers in Hong Kong are subject to general consumer protection legislation, including: the Trade Descriptions Ordinance (Cap. 362), which prohibits false or misleading descriptions of goods or services (including in NFT marketing materials); the Unconscionable Contracts Ordinance (Cap. 458), which provides a remedy for contracts made on unconscionable terms; and the general law of misrepresentation (which may give buyers a remedy if material facts about the NFT or the underlying asset were misrepresented).

There is no NFT-specific consumer protection legislation in Hong Kong, but the general consumer protection framework is increasingly being applied to digital asset transactions. Marketplaces that target Hong Kong retail buyers should ensure that their marketing materials are accurate, that the rights conferred by the NFT are clearly described, and that adequate disclosure is made of the risks associated with NFT investment.

AML/CFT Considerations for NFT Platforms

NFT marketplaces that facilitate transactions for artworks or collectibles with significant value may be subject to AML/CFT obligations under the Anti-Money Laundering Ordinance, particularly where the NFTs are analogous to high-value art objects. The specific obligations depend on the platform's structure and the value of transactions facilitated. Platforms facilitating large-value NFT transactions should take legal advice on whether they fall within the scope of AMLO's definition of "dealers in precious metals and stones" or other regulated entities, and whether enhanced customer due diligence is required for high-value transactions.

How Alan Wong LLP Can Help

Alan Wong LLP advises on the legal aspects of NFT creation, issuance, and trading in Hong Kong, including: regulatory classification of NFT projects (assessing whether proposed NFTs constitute securities or collective investment schemes); drafting NFT terms of sale and licence agreements for creators and platforms; advising on IP ownership and licensing in NFT structures; advising on marketplace operator regulatory obligations; and advising on consumer protection compliance for NFT marketing. We work with digital artists, NFT platform operators, brands, and investors at all stages of the NFT lifecycle.