Hong Kong Crypto Exchanges Coming Under Increased Regulatory Scrutiny

The Securities and Futures Commission (SFC) of Hong Kong appears set to adopt a new approach to regulating the local cryptocurrency trading market. This announcement comes after the FSC chairman, Carlson Tong Ka-shing, said that Hong Kong needed a more robust regulatory framework for cryptocurrency trading. 

Expanded Regulatory Oversight

In a press release issued by the FSC on Thursday (November 1, 2018), the financial regulatory watchdog declared its intention to create an expanded regulatory framework for cryptocurrency exchange platforms.

According to the statement, the FSC wishes to offer more robust investor protection.

Commenting on the new approach, SFC Chief Executive, Ashley Alder, 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. We hope to encourage the responsible use of new technologies and also provide investors with more choices and better outcomes.

Licenses for Cryptocurrency Funds and Exchange Platforms

As part of the new regulatory paradigm considered by the FSC, there are plans to issue licenses to cryptocurrency funds. Presently, the SFC’s mandate only covers assets that qualify as futures contracts or securities. However, the SFC plans to license all such funds, whether the virtual currency portfolios being managed are securities/futures contracts or not.

Apart from virtual currency funds, the SFC is also looking at exchange platforms. The statement says the regulators wish to examine whether exchanges should fall under the SFC’s mandate. To this end, the Commission plans to see how well such platforms respond to its regulatory provisions.

HK regulator(SFC) to consider granting licenses to crypto exchanges. Will observe exchange compliance, determine whether to regulate them, and consider granting licence afterwards. We believe SFC's decision may provide referential example to mainland Chinahttps://t.co/jufcSF8Akb

— cnLedger (@cnLedger) November 1, 2018

The next step for the SFC depends entirely on the result of the examination process. On the one hand, the Commission can establish licensing requirements and enact close supervision of cryptocurrency exchanges. On the other hand, the SFC may decide that there isn’t any appropriate framework with which to license virtual currency exchanges.

Thursday’s press release is in keeping with the recent sentiments espoused by the Commission regarding the regulation of cryptocurrency trading. Earlier in the month, the FSC Chairman declared that a blanket ban on virtual currency trading in Hong Kong wouldn’t be practical. Meanwhile in the prohibition against cryptocurrency trading and ICOs in mainland China continues.

Will the proposed expansion of the SFC oversight on exchange platforms lead to better cryptocurrency trading conditions in Hong Kong? Let us know your thoughts in the comment section below. 

Images courtesy of Shutterstock, Bitcoinist archives, Twitter (@cnLedger).