Hong Kong plans crypto fund restrictions

According to a release, the SFC will impose licensing conditions on firms that manage or intend to manage portfolios where 10% or more of the gross asset value is invested in virtual assets. These conditions would be irrespective of whether the virtual assets meet the definition of “securities” or “futures contracts.”

Virtual assets, including cryptographic tokens and currencies, typically come under pressure from authorities only in instances where they mimic properties of traditional equities and are therefore deemed subject to securities regulations. The SFC indicated it would consider such a move as early as September last year, when China’s central bank illegalized token sale fundraisings, also known as initial coin offerings (ICO). 

"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," Ashley Alder, the SFC's CEO, said. "We hope to encourage the responsible use of new technologies and also provide investors with more choices and better outcomes."

Under the new rules, licensed crypto investors would operate in a regulatory “sandbox” where assets traded will be considered as to whether they should be formally regulated by the SFC. This process will take into account international regulatory developments, including input from the International Organization of Securities Commissions. The identity of sandbox applicants will be kept confidential. 

Momentum behind crypto regulatory oversight has been driven by concerns about fraud risk related to the assets’ inherent properties of anonymity as well as the market disruption implied by the advent of ICOs, which have been known to raise large sums for speculative early-stage companies. To date, venture capital has played a leading role in integrating the technology into the traditional financial sector. 

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• Topics
• Greater China
• Financials
• Technology
• Regulation
• Hong Kong (China)
• Cryptocurrency
• ICO