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Hong Kong Financial Watchdog to Regulate Crypto Funds, Trading Platforms

Hong Kong securities regulator, the Securities and Futures Commission (SFC), announced plans to introduce a formal regulatory framework to supervise domestic cryptocurrency funds and digital asset exchanges in a bid to enhance investor protections.

Hong Kong to Step Into the Regulatory Fold

Securities and Futures Commission CEO Ashley Alder made the announcement of the comprehensive set of regulations planned for the budding crypto sector at Hong Kong Fintech Week.

Following the announcement, Hong Kong’s financial watchdog released a circular setting out the regulatory standards that would outline the trajectory of domestic crypto investment funds and virtual currency exchanges.

As per the circular, investment funds with more than ten percent of their portfolio in digital assets, either directly or through brokers, are required to register with the SFC. The new set of rules will bring private equity firms into the regulatory fold, safeguarding investors from the largely unregulated crypto marketplace.

Apart from protecting investors, Alder is of the opinion that the constructive regulatory framework will lead to the growth of the domestic crypto space.

“The new regulations are aimed at enhancing investor protection as there is a lot of active trading in these virtual assets in Hong Kong while they are not regulated. Proper regulation would allow the proper firms and platforms to thrive. This will benefit the development of markets in Hong Kong.”

Two weeks back, SFC chairman Carlson Tong Ka-shing had hinted at the potential introduction of formal regulations for the nascent crypto sector, while rebuffing rumors of a blanket ban akin to neighboring China.

A Smooth Transition

As per the new regulations, individuals deemed professional investors will have access to crypto investment funds. According to Hong Kong law, an investor holding $1 million USD in assets and with at least two years of experience in the market is defined as a professional investor. Hence, retail investors will not be able to invest in crypto funds.

The SFC has demanded both crypto investment funds and digital asset exchanges comply with the new set of rules immediately. To ease the transition, the body has proposed a regulatory program dubbed “sandbox”, where crypto trading exchanges can iron out the details of operating within a regulatory environment.

Exchanges Can Opt in or Out

Exchange platforms are at liberty to opt in or out of the proposed regulatory regime. The Sandbox environment will give crypto exchanges more time to implement the transitions before being formally regulated by the SFC:

“Those exchanges that want to be regulated by us will be set apart from those that don’t. This is essentially an opt-in approach for exchanges and platform operators, and they will first explore the conceptual framework with us in a strict sandbox environment.”

While countries around the world have spent years puzzling over cryptocurrency regulations, the autonomous territory of Hong Kong has taken a firm and constructive decision to regulate the nascent crypto space.

Meanwhile, Chairman of the Hong Kong Securities Association Gary Cheung also believes that the new regulations will nurture the thriving sector by attracting more investors from China, while at the same time protect investors from associated risks in the sector.

Will the new crypto regulations help Hong Kong become a global hub for trading virtual currencies? Share your views in the comments section below.

Images via Pixabay

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