The Securities and Futures Fee of Hong Kong has introduced new plans to control the cryptocurrency business. The regulator issued two circulars on Thursday outlining new guidelines for crypto exchanges in addition to crypto asset portfolio managers, intermediaries, and fund distributors.
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New Regulatory Strategy
The Hong Kong Securities and Futures Fee (SFC) issued two circulars on Thursday regarding cryptocurrency laws. The primary outlines “a brand new strategy which goals to deliver digital asset portfolio managers and distributors of digital asset funds below its regulatory internet,” the fee wrote. It additionally “units out a conceptual framework for the potential regulation of digital asset buying and selling platforms.” The second doc addresses intermediaries that distribute crypto funds.
The SFC defines a digital asset as “a digital illustration of worth, which is also referred to as ‘cryptocurrency’, ‘crypto-asset’ or ‘digital token’.”
Citing “important dangers digital property pose to traders,” the fee introduced that it’s going to “undertake new measures inside its regulatory remit,” elaborating:
The SFC will impose licensing situations on companies which handle or intend to handle portfolios investing in digital property.
As well as, the regulator famous that it’s going to discover whether or not crypto exchanges “are appropriate for regulation within the SFC regulatory sandbox.”
Dangers Underneath Current Regulation
Within the first doc, the securities watchdog expressed concern over “the rising investor curiosity in gaining publicity to digital property by way of funds and unlicensed buying and selling platform operators in Hong Kong.” The SFC defined that traders usually are not protected because the Securities and Futures Ordinance (SFO) at the moment doesn’t apply to unregulated exchanges or portfolio managers, including:
Underneath current regulatory remits in Hong Kong, markets for digital property is probably not topic to the oversight of the SFC if the digital property concerned fall exterior the authorized definition of ‘securities’ or ‘futures contracts’ (or equal monetary devices).
The regulator proceeded to stipulate the “important dangers” related to investing in crypto property which it has recognized reminiscent of volatility, liquidity, cybersecurity, secure custody of property, market integrity, cash laundering, terrorist financing, battle of curiosity and fraud.
Licenses and Regulatory Sandbox
Underneath the brand new guidelines, crypto asset portfolio managers might be topic to the SFC’s supervision “no matter whether or not the crypto property meet the definition of securities or futures contracts.”
Noting that companies which distribute funds that put money into crypto property in Hong Kong will should be licensed, the fee detailed:
Licence candidates and licensed firms are required to tell the SFC if they’re presently managing or planning to handle a number of portfolios that put money into digital property.
The SFC will then consider whether or not the agency is able to assembly the anticipated regulatory requirements. If the agency doesn’t adjust to the proposed phrases and situations, its licensing software might be rejected. Licensed firms failing to conform might be required to unwind their crypto portfolios inside an affordable time frame.
“If the SFC grants a licence to a professional platform operator, it should impose applicable licensing situations and the operator will proceed to the following stage of the sandbox,” the regulator described. “This might usually imply extra frequent reporting, monitoring and opinions,” the fee added, stating:
After a minimal 12-month interval, the digital asset buying and selling platform operator could apply to the SFC for elimination or variation of some licensing situations and exit the sandbox. Licensing situations (and phrases and situations) imposed on this stage can be made public within the typical manner.
Crypto Asset Funds
The second round addresses each approved and unauthorized intermediaries that distribute crypto funds. They’re required to adjust to the SFC’s Code of Conduct. “Particularly, intermediaries ought to make sure that the advice or solicitation made is appropriate for purchasers in all circumstances,” the regulator emphasised.
Intermediaries must also present their purchasers with all the mandatory data to make knowledgeable funding choices “in a transparent and simply understandable method.” Moreover, the SFC defined that they need to conduct due diligence on the fund supervisor, the fund itself, and the fund’s counterparties, noting:
Intermediaries are reminded to implement enough programs and controls … earlier than they have interaction within the distribution of digital asset funds. Failure to take action could have an effect on their health and properness to stay licensed or registered and will lead to disciplinary motion by the SFC.
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Pictures courtesy of Shutterstock and Hong Kong SFC.
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