Today the Hong Kong Securities and Futures Commission (SFC) issued a statement that broadens the scope of organizations that fall under its regulatory net. Portfolio managers and distributors of digital asset funds are now part of its remit. This is the case even if the digital asset is not considered a security or future. Additionally, it outlined plans to regulate exchanges.
The SFC referred to “virtual assets” which it defined as covering cryptocurrencies, crypto-assets and digital tokens. However, the SFC’s remit is expanded because it usually only provides oversight for “securities” or “futures contracts”. The regulator states that this approach leaves many investors unprotected.
Hence as an example, the following type of portfolio managers will now be subject to SFC supervision: “Firms managing funds which solely invest in virtual assets that do not constitute “securities” or “futures contracts” and distribute the same in Hong Kong.”
The new rules also restrict the sale of digital asset funds to professional investors. But if less than 10% of the portfolio is invested in cryptocurrencies, then this restriction does not apply.
The regulatory standards cover disclosures to investors, safeguarding assets, valuation, risk management, audits and liquid capital.
“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,” said Mr. Ashley Alder, the SFC’s CEO. “We hope to encourage the responsible use of new technologies and also provide investors with more choices and better outcomes.”
“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,” Mr. Alder added.
To that end, Hong Kong is setting up a sandbox for exchanges to trial a new regulatory framework.
