Web3 Gaming and NFT Marketplaces: Legal Risks and Compliance in Hong Kong

Introduction

The intersection of blockchain technology, gaming, and digital collectibles has given rise to a vibrant ecosystem of Web3 gaming platforms and NFT (non-fungible token) marketplaces. Hong Kong, with its ambition to become a leading virtual asset hub, has seen growing interest from developers, investors, and operators looking to establish or scale these businesses in the jurisdiction.

Yet the legal landscape for Web3 gaming and NFT marketplaces is complex and evolving. Platforms operating in or from Hong Kong must navigate potential securities regulation, anti-money laundering (AML) obligations, intellectual property rights, and consumer protection requirements—while remaining agile in response to regulatory developments. This article provides an overview of the key legal risks and compliance considerations.

What Are Web3 Games and NFT Marketplaces?

Web3 games incorporate blockchain technology to allow players to own in-game assets (such as characters, weapons, and virtual land) as NFTs or fungible tokens. Play-to-earn (P2E) models enable players to earn tokens or NFTs with real-world monetary value. NFT marketplaces are platforms where users can mint, buy, sell, and trade NFTs representing digital art, collectibles, gaming assets, music, and other content.

Both categories present distinct legal challenges depending on the nature of the assets involved, the mechanics of the platform, and the jurisdiction of the users.

Securities Law Considerations

Are NFTs Securities?

The classification of an NFT as a security in Hong Kong depends on its economic substance, not its label. The Securities and Futures Commission (SFC) has adopted a substance-over-form approach: if an NFT confers rights or interests analogous to those of a security (such as a share, debenture, or collective investment scheme interest), it will be regulated as a security regardless of how it is described.

NFTs that are purely digital collectibles or art with no investment returns—where the value is intrinsic to the item rather than derived from the efforts of others—are less likely to constitute securities. However, NFTs that offer profit-sharing, yield, or governance rights, or that are marketed as investments, carry a much higher risk of securities classification.

In-Game Tokens

Fungible tokens used in Web3 games (governance tokens, utility tokens, and earning tokens) are subject to the same analysis. Tokens that represent a share of profits, confer voting rights over a project, or are marketed primarily as investment opportunities are likely to constitute securities or collective investment scheme interests, requiring the operator to be licensed under the Securities and Futures Ordinance (SFO) or to comply with applicable exemptions.

Virtual Asset Service Provider (VASP) Licensing

NFT marketplaces and Web3 gaming platforms that facilitate the trading of virtual assets (including tokens that meet the definition of virtual assets under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance) may be required to obtain a VASP licence from the SFC under the licensing regime that took effect in June 2023. Operators should carefully assess whether their platform activities fall within the definition of operating a virtual asset exchange.

Anti-Money Laundering and Counter-Terrorist Financing

Virtual asset service providers in Hong Kong are subject to comprehensive AML/CTF obligations under the AMLO. Licensed VASPs must implement customer due diligence (CDD) measures, including know-your-customer (KYC) verification for users, ongoing transaction monitoring, suspicious transaction reporting, and record-keeping requirements.

NFT marketplaces present particular AML risks because high-value NFT transactions can be used to transfer value across borders with relative anonymity. The Financial Action Task Force (FATF) has highlighted NFT platforms as a potential vector for money laundering and has called on jurisdictions to extend AML oversight to high-value NFT dealers.

Platform operators should implement risk-based AML programmes, including user verification at appropriate thresholds, transaction screening, and suspicious activity reporting frameworks.

Intellectual Property Rights

Ownership of NFT-Linked Content

A common misconception is that purchasing an NFT confers copyright in the underlying content. In most cases, it does not. The NFT is a record on the blockchain that may represent ownership of a specific token—not ownership of the underlying artwork, music, or other content. Copyright in the content remains with the creator unless it is explicitly assigned.

Platform operators and NFT issuers should ensure that the terms and conditions of their platform clearly define what rights (if any) are transferred with the NFT and avoid representations that could mislead buyers about the scope of their rights.

Infringement Risks

NFT marketplaces that allow user-generated content face significant infringement risks if users mint NFTs from content they do not own. Platform operators should implement takedown procedures for infringing content, obtain appropriate representations and warranties from users upon minting, and consider notice-and-takedown frameworks aligned with the Copyright Ordinance (Cap. 528).

Consumer Protection

Web3 gaming platforms and NFT marketplaces that deal with consumers (as opposed to sophisticated investors) must comply with Hong Kong's consumer protection laws, including the Trade Descriptions Ordinance (Cap. 362) and the Supply of Services (Implied Terms) Ordinance (Cap. 457). Misleading representations about the value, rarity, or utility of NFTs, or about the earning potential of Web3 gaming platforms, may attract civil and criminal liability.

Platforms should ensure that their marketing materials and platform interfaces are accurate and do not make unsubstantiated promises about financial returns.

Regulatory Engagement

The SFC has signalled that it will apply its regulatory perimeter broadly to virtual asset activities. Operators of Web3 gaming platforms and NFT marketplaces who are uncertain about their regulatory status should engage proactively with the SFC or seek legal advice on their obligations before launching or scaling their activities in Hong Kong.

Conclusion

Web3 gaming and NFT marketplaces occupy an exciting frontier in digital commerce, but the legal risks are real and multifaceted. Platform operators must assess their securities law exposure, implement AML/CTF frameworks, protect against IP infringement, and communicate honestly with users. Building compliance into the platform from the outset is far less costly than retrofitting it after regulatory scrutiny has begun.

Alan Wong LLP advises Web3 businesses, NFT platforms, and gaming companies on regulatory compliance, licensing, intellectual property, and corporate structuring in Hong Kong. Contact us for a consultation on how to structure your platform for regulatory compliance.