Hong Kong SFC seeks to regulate crypto funds and trading platforms

The Hong Kong Securities and Futures Commission (SFC) has announced that it plans to bring crypto portfolio managers and distributors of cryptocurrency funds under its regulatory net.

The regulator said that it will adopt new measures within its regulatory remit to protect those who invest in cryptocurrency funds. This includes imposing licensing conditions on investment funds which intend to invest 10 percent or more of the gross asset value of their portfolio in “virtual assets.”

The SFC further clarified that the licensing requirements will apply irrespective of whether virtual assets meet the definition of "securities" or "futures contracts".

In September 2017, the regulator issued a statement explaining that digital tokens offered in an initial coin offering (ICO) may be subject to securities laws of Hong Kong depending on the facts and circumstances. In its latest release, it noted that many virtual assets currently do not meet the definition of "securities" or "futures contracts" under the Securities and Futures Ordinance (SFO).

“As such, managing funds solely investing in virtual assets which do not constitute “securities" or "futures contracts" does not amount to a "regulated activity" as specified under the SFO,” it added.

Ashley Alder, the SFC’s Chief Executive Officer, said that the measures will help protect investors’ interest either at the fund management level, at the distribution level, or both.

"We hope to encourage the responsible use of new technologies and also provide investors with more choices and better outcomes,” Alder added.

In addition, the SFC has also set out a conceptual framework for the potential regulation of cryptocurrency trading platforms. It said that it will explore whether crypto trading platforms are suitable for regulation in the SFC Regulatory Sandbox.

To that end, it said that it will observe the operations of interested trading platform operators and their compliance with proposed regulatory requirements in the Sandbox environment. Accordingly, it would consider granting a license to these platforms and putting them under its close supervision.