The Hong Kong Securities and Futures Commission (SFC) is looking to protect investors by bringing crypto funds under its regulatory umbrella.
Investors continue to show a lot of interest in crypto funds even though they have a reputation of being very risky and volatile. This is especially because of the lack of regulation in the market and the SFC is looking to bridge this gap.
The SFC's move was announced in a recent circular. The SFC instructed businesses in Hong Kong who plan to invest 10 percent or more of their funds into crypto assets to obtain a license and register at the agency.
The circular also cleared up what it meant by virtual assets and clarified that digital tokens, crypto assets and other items of a similar nature will be treated as virtual assets.
This mandatory registration will cover any investment fund, whether it is a futures or securities contract.
In a statement, Ashley Alder, Chief Executive Officer of the SFC said
The measures announced today allow us to regulate the management or distribution of virtual asset funds in one way or another so that investors' interests would be protected either at the fund management level, at the distribution level, or both
According to Alder, the crypto fund market is still quite young and needs some fair and clear trading rules to protect investors. Manipulating and abuse are common so it was just common sense for the SFC to step in and ensure that investors are protected.
Seeking Input
The SFC is taking steps to get the market response to this new move. The financial regulator has already reached out to various members of the industry for feedback and insights. According to Jehan Chu, the managing director of Kenetic Capital, he is happy to see that the SFC take steps to strengthen the virtual asset market.
The SFC has also hinted that it is planning to start a sandbox program for local cryptocurrency exchanges. This would be a test to determine whether Hong Kong trading platforms need a licensing scheme similar to what is being followed in Japan. The sandbox program will allow the SFC to observe the interactions of various exchanges and keep better tabs on the market to make a proper evaluation.
Right now, no crypto exchanges have a license to operate in Hong Kong. If they do get a license, there will be a thorough monitoring of their operations as well as a channel for constant reporting. This is to ensure all internal protections are observed and investors are truly safe in their hands when trading in Hong Kong.
