Hong Kong’s Securities and Futures Commission (SFC) unveiled a comprehensive set of regulations today for governing cryptocurrencies with an aim of making the city a major trading centre for virtual assets. 

Regulation and a Sandbox

The new rules will target funds that invest in digital currencies as well as the platforms on which they are traded. One key stipulation will be that funds that invest more than 10 per cent of their assets in virtual currencies will need to be licensed by the SFC, ending an era in which private equity funds could operate unregulated in the environment. Gary Cheung, chairman of Hong Kong Securities Association, said ‘this will help Hong Kong to be among the top cryptocurrency trading centres worldwide because proper regulation is very important for attracting the big players.’ The statement issued today sets out a new approach which aims to bring virtual asset portfolio managers and distributors of virtual asset funds under its regulatory net. It also sets out a conceptual framework for the potential regulation of virtual asset trading platforms. The SFC will also explore whether virtual asset trading platforms are suitable for regulation in the SFC Regulatory Sandbox, and observe the operations of interested trading platform operators and their compliance with proposed regulatory requirements in the Sandbox environment.

Investor protection

In light of the significant risks virtual assets pose to investors, the SFC will adopt new measures within its regulatory remit to protect those who invest in virtual asset portfolios or funds. The SFC will impose licensing conditions on firms which manage or intend to manage portfolios investing in virtual assets, irrespective of whether the virtual assets meet the definition of ‘securities’ or ‘futures contracts.’ Ashley Alder, the SFC’s chief executive officer, 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.’ Mr Alder added, ‘we have also set out a conceptual framework to explore a pathway for compliance for virtual asset trading platform operators who are willing to be supervised by us.’