Hong Kong adapts crypto policies to prioritise investor protection

The SFC and HKMA will designate virtual asset-related products as "complex products" and enforce conditions for intermediaries engaged in their sale

By Shashank Bhardwaj

Published: Oct 23, 2023 07:12:01 PM IST

Updated: Oct 25, 2023 09:23:09 AM IST

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The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) jointly announced they will update their virtual asset-related policies. This move aims to enhance investor protection and address complexities associated with these products.

Hong Kong’s initial crypto policy restricted various crypto activities to professional investors only. However, as the landscape has transformed, with many investment products offering exposure to virtual assets, the authorities are introducing additional measures to safeguard retail investors' interests.

Crypto platforms are operating with varying degrees of regulation. This subjects crypto investors to different standards compared to traditional financial service providers. Such risks were highlighted by the SFC in 2018.

To address these complexities, the SFC and HKMA will classify virtual asset-related products as "complex products" and impose requirements for intermediaries selling them, aligning with the SFC's guidelines for complex product sales. The commission cites examples of complex products, including crypto exchange-traded funds and products originating outside Hong Kong.

These requirements also include additional investor protection measures, particularly for overseas non-derivative products like crypto exchange-traded funds (ETFs) and exchange-traded products (ETPs).

As part of these updated measures, certain virtual asset-related products, considered complex, will only be accessible to professional investors. Intermediaries facilitating crypto transactions for retail investors must assess their clients' knowledge of virtual assets and provide appropriate training when necessary. Additionally, they should ensure that clients have the financial capacity to understand potential risks and losses associated with trading virtual asset-related products.

These regulatory changes come in the wake of the JPEX scandal, which prompted increased scrutiny of the crypto sector and suspended some of the exchange's activities.

Hong Kong is striving to position itself as a hub for crypto assets and businesses, especially in the aftermath of the Covid-19 pandemic, as part of its broader efforts to revitalise its status as a global financial centre.

With a specialised unit created to monitor cryptocurrency exchanges, the SFC and the Hong Kong police continue to be vigilant in overseeing the crypto sector, and further regulatory adjustments may be on the horizon.

The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash