Crypto Regulation Tightened in Hong Kong: See Changes

Vladislav Sopov

Hong Kong Securities and Futures Commission (SFC) updated regulations of operations with crypto and crypto ETFs

The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) issued a very confusing circular to clarify the rules for companies offering services somehow related to virtual assets. Some of these assets are considered “complex products” that are explicitly prohibited from being released to retail clients.

Virtual assets are “complex products” only for professional investors, new HK circular says

Virtual assets-related products that are considered complex products should only be offered to professional investors, as per the new document called Joint Circular On Intermediaries’ Virtual Asset-Related Activities issued by Hong Kong watchdogs yesterday, Oct. 20, 2023.

The release of the document was noticed by the Chinese crypto journalist Colin Wu.

However, the exact definition of “complexity” remains too vague in the document. For instance, its authors added that an overseas VA non-derivative ETF would “very likely” be considered a complex product that should only be available to professionals.

At the same time, some exchange-traded VA derivatives traded on regulated exchanges specified by the SFC still can be approved for offering to retail investors.

Even if approved for work with retail non-qualified investors, the services should conduct “virtual assets knowledge tests” and educate their clients about the opportunities and risks of cryptocurrency markets.

Also, the document specified new rules for asset management funds that work with cryptocurrency assets and cryptocurrency advisors.

Hong Kong lawmakers sending mixed signals

For instance, every advisor should check the volume of liquidity for an asset they recommend and its listings track on various exchanges:

Intermediaries should, at a minimum, ensure that the virtual asset is an eligible large-cap virtual assete, it should have been included in a minimum of two acceptable indices issued by at least two different index providers

This rule may also affect the segment of crypto marketing and advertising, as no specific rules for promoting cryptocurrencies were released.

In 2023, Hong Kong regulators issued a number of various crypto-related statements. For instance, in June 2023 they were said to “force” local banks to start working with crypto-friendly businesses.

Two weeks later, the head of the HK SFC warned that making Hong Kong a global trading hub for crypto was never the goal of his commission.

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