Hong Kong’s SFC Moves to Update Crypto Market Regulations Following New Market Developments

Hong Kong's Securities and Futures Commission (SFC) has announced plans to update its framework on cryptocurrency sales and requirements amid the evolving market development of the digital asset industry. 

In the regulator’s upcoming amendment notice published on October 20, five major parts were addressed with respect to the crypto industry. 

These include distributing virtual assets (VA)-related products and the provision of crypto dealing services, asset management platforms, advisory services, and implementation steps. 

SFC stressed that while the spread of VA has scaled past regions and increased in popularity, the global regulatory landscape remains uneven. 

The risks associated with investing in digital assets, such as anti-money laundering (AML) and counter-financing terrorism (CFT), are still present. 

However, the SFC and Hong Kong authorities prioritize investor protection due to the burgeoning growth of the cryptocurrency regulatory landscape.

This will be followed with updated stringent measures and requirements to curb risks associated with these assets. 

The comprehensive amendment notice stated that restrictions would be imposed on selling some assets. 

For example, VA-related complex products, like crypto exchange-traded funds and products outside Hong Kong, will only be available to professional investors. 

In addition, intermediaries linked with the crypto space will assess whether investors have substantial knowledge about trading in VAs before executing any transactions. 

Oversight of Hong Kong’s Latest Regulatory Landscape

At press time, there is no specific legislative policy in Hong Kong that regulates virtual assets (VA), and no agency is tasked with scrutinizing the evolving market landscape. 

However, several financial regulators have released guidelines to oversee the industry. These include the Hong Kong Monetary Authority (HKMA), Securities and Futures Commission (SFC), and Insurance Authority (IA).

If a VA has security characteristics as clarified under Cap 571 of Hong Kong’s Securities and Futures Ordinance (SFO), it will be regulated by the SFC and relevant laws. 

The latest guideline notice came after a series of complaints by over 2,300 users of the JPEX crypto exchange, which entails losses of funds and assets worth millions of dollars. 

The SFC revealed that the Dubai-based trading platform had operated without a license for VA trading. 

Investigation revealed that most victims were newbie investors who were promised massive yields. The faux exchange collaborated with influencers to advertise unregistered products and services.

To prevent the reoccurrence of the JPEX scandal and provide investors with standard protection, the SFC partnered with the Hong Kong Police Force (HKPF) to set up a crypto-centric group for illicit activities. 

According to the official announcement on October 4, the new group will continue investigating the JPEX scandals, and more arrests will follow.