• SFC says its intention is to protect crypto traders and companies
• Hong Kong promised last month to adopt a sandbox approach in implementing new regulations
• There are fears that tighter regulations will become burdensome and scare away investors
Hong Kong’s financial watchdog plans to enhance investor protection by introducing new stringent rules for cryptocurrency traders and companies.
Hong Kong Mulling Stringent Crypto Regulations
Hong Kong’s financial watchdog is looking to tighten investor protection by regulating cryptocurrency trading platforms. The Island nation is taking a different stance from mainland China’s complete ban on cryptocurrency trading, instead issuing warnings and cautioning investors.
The Securities and Futures Commission, according to a post on Asia Nikkei, has issued guidelines that require investment funds to seek a license if over 10 percent their asset base is made of Bitcoin or any other digital currency, besides being allowed to sell digital assets only to professional investors.
According to the proposed regulations, crypto startups can only be allowed to issue ICOs after fulfilling SFC’s requirements which include having had existed for at least 12 months. Hong Kong’s decision appears to follow the growing trend such as the G20’s recent initiative to create ways to regulate cryptocurrencies to enhance the fight against money laundering and terrorist financing.
Hong Kong’s financial regulator, the Securities and Futures Commission (SFC) has been keen on exploring different ways to regulate cryptocurrencies and especially the exchange platforms operating in the island. The financial watchdog said in an article published in the South China Morning Post on October 15, 2018, it believed a total ban on cryptocurrencies similar to the one in Mainland China was ineffective during this internet age saying its main concern was the lack of regulation in the nation.
Early last month, SFC’s CEO announced a new set of rules that would govern cryptocurrency exchanges when he spoke during the Hong Kong Fintech Week 2018. According to the SFC head, the regulator would be going to adopt a sandbox approach to enable it to make the right decisions to implement regulations. The Sandbox, he said, would allow Fintech firms waivers over time. Adler stated then:
“If, and only if, we decide at the Sandbox stage that we should regulate, we would consider granting a license,[…] the platform would then be subject to intensive reporting and monitoring to ensure that strict internal controls operate as expected and investor interests are protected.”
There are concerns that tight regulation will increase the cost of trading for crypto firms and therefore discourage institutional investors from entering the market and work against SFC’s hope of strengthening the market, which the regulator believes will lead to greater investor confidence. Timothy Loh, a manager at a local law firm says:
“The requirements of the SFC initiative may prove too burdensome for some operators.”