Hong Kong’s Securities and Futures Commission (SFC) To Propose A ‘Sandbox’ Regulation For Cryptocurrency Exchanges

Panorama Hong Kong Skyline from Victoria Peak at dusk

Hong Kong’s Securities Watchdog to Regulate Crypto Funds- Hong Kong’s Securities and Futures Commission (SFC) says it will bring crypto funds under its securities regulations to improve investor protection.

In a circular issued Thursday, the financial regulator said that investment funds based in Hong Kong and that intend to invest more than 10 percent of their gross portfolios into “virtual assets,” either directly or indirectly via intermediaries, will have to be licensed and registered with the agency.

“Virtual assets” are defined as “digital tokens

In a footnote, the SFC further explained that “virtual assets” are defined as “digital tokens (such as digital currencies, utility tokens or security or asset-backed tokens) and any other virtual commodities, crypto assets and other assets of essentially the same nature.”

This rule applies irrespective of whether the underlying crypto assets amount to securities or futures contracts as defined in the Securities and Futures Ordinance (SFO), according to the statement.

Ashley Alder, the SFC’s chief executive officer, said in a news release:

“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”

Jehan Chu, managing director of the Hong Kong-based crypto investment firm Kenetic Capital, said the move comes after the SFC had reached out to the industry, seeking feedback and insights.

SFC taking concrete steps to provide clarity and guidance around digital asset management

“We are happy to see the SFC taking concrete steps to provide clarity and guidance around digital asset management, distribution of fund interests and trading platforms, which shows that the SFC is willing to support the growth of the crypto and blockchain eco-system in a safe and sustainable manner,” he said.

The regulator also indicated it is planning to allow cryptocurrency exchanges in the city to opt-in to a new sandbox program in a bid to determine whether to impose a licensing scheme for trading platforms in the future – an approach taken by SFC’s counterpart in Japan.

Under the sandbox, the SFC said it will observe the operations of cryptocurrency exchanges and place interested and qualified parties in the regulatory sandbox after careful consideration.

Factors to be considered:

“Factors to be considered include the adequacy and effectiveness of the proposed conceptual framework; ability to comply with the terms and conditions; investors’ interests; as well as local market and international regulatory developments,” the statement reads.

None of the crypto exchanges in Hong Kong are licensed

Currently, none of the crypto exchanges in Hong Kong are licensed, as per the conceptual framework paper published today. If granted, they will be subject to intensive reporting and monitoring to ensure that strict internal controls are operating as expected and investor interests are protected.

Alder added, “We hope to encourage the responsible use of new technologies and also provide investors with more choices and better outcomes.”

Crypto Security Company Ledger Opens Branch in Hong Kong

Crypto hardware wallet firm Ledger has announced it is opening a new branch in Hong Kong, according to a press release shared with Cointelegraph Wednesday, Oct. 31.
One of the leading hardware wallet manufacturers with headquarters in Paris and San Francisco, Ledger also reveals that it has assigned Benjamin Soong as head of the Asia Pacific (APAC), responsible for all Ledger operations held in the region. Soong is a former managing director for U.S. financial analytics corporation S&P Global.

Ledger’s president Pascal Gauthier further explained that Soong will help the company monetize its opportunities in APAC:

“He brings a tremendous amount of experience and expertise in the region, which will help Ledger capitalize on future opportunities. APAC is a key market that has seen increased demand. With Benjamin at the helm, we are confident we can deliver top security for both consumers and financial institutions to protect their crypto assets.”

Prior to the recent announcement, Ledger, together with software provider for cryptocurrency Blockchain.com, had revealed it is launching a hardware wallet that is fully compatible with the Blockchain Wallet. According to the release, the companies aim to offer “a convenient alternative” to store crypto offline for 30 million users.

In January, Ledger succeeded in raising $75 million in a Series B funding round led by European venture capital firm Draper Esprit. The amount raised was said to be the largest non-Initial Coin Offering (ICO) round by a cryptocurrency startup, following a $7 million Series A in 2017.

As Cointelegraph wrote in July, Ledger reportedly attracted the interest of tech giants like Samsung, Google’s venture arm GV, and Siemens after the company managed to sell more than one million hardware crypto wallets throughout 2017, earning a profit of $29 million.

Recently Hong Kong officials have revealed plans to introduce crypto regulations. In June, Hong Kong’s Securities and Futures Commission (SFC) said that the regulator was keeping “a close watch” on crypto and ICOs, “intervening when appropriate.” Earlier this month, the SFC’s chairman told a local newspaper that the watchdog was planning to establish a legal framework for crypto assets.

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.
Aamir Kapoor is a fintech writer specializing in cryptocurrency and blockchain. He has a background in finance and banking and was a researcher.