Hong Kong Drafts New Plans for Crypto Regulations

Nishanth Shetty

November 2, 2018 1:55 pm

Crypto Regulation

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The Securities and Futures Commission of Hong Kong (SFC) has announced its plans for regulating the cryptocurrency industry. The regulator published two drafts for cryptocurrency exchanges, cryptocurrency portfolio managers, intermediaries, and fund distributors.

The first draft describes an approach that aims to bring cryptocurrency portfolio managers and fund distributors under its regulatory part. It also puts a conceptual framework for the regulation of cryptocurrency exchanges.

The second document addresses intermediaries that distribute cryptocurrency funds. The SFC calls cryptocurrency a digital representation of value, crypto tokens, virtual assets, and digital tokens.

The SFC said that cryptocurrencies pose specific risks towards investors. The commission included that it will adopt new measures within its regulatory remit.

The SFC announced:

“The SFC will impose licensing conditions on firms which manage or intend to manage portfolios investing in virtual assets.”

It is said that that security watchdog will explore whether crypto exchanges are suitable for regulation in the SFC regulatory sandbox.

In the first document, the securities watchdog mentioned investors’ interest in digital currencies and gaining funds via unlicensed trading platform operators in Hong Kong. The SFC added that such investors are not protected since unregulated exchanges or portfolio managers are not registered under its law.

The regulator also noted that there are significant risks associated with investing in cryptocurrencies. These risks include money laundering, safe custody of assets, conflict of interest, fraud, volatility, market integrity, liquidity, terrorist financing, and cybersecurity.

Under the new rules, cryptocurrency portfolio managers will be subject to the SFC’s supervision. They should make sure the cryptocurrency meets the definition of securities or futures contracts.

The SFC included that firms which distribute funds invested in digital currencies must be licensed. The licensed applicants and corporations should inform the SFC if they are managing one or more portfolios that invest in virtual assets.

The regulatory body will then check whether the firm is capable of meeting the regulatory standards. If the company does not meet the terms and conditions, its licensing application will be rejected.

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