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BY CNA Team - November 1, 2018

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HK’s securities watchdog to regulate crypto funds

HK’s Securities and Futures Commission to regulate crypto funds
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Hong Kong’s Securities and Futures Commission (SFC) wants to better protect investors by bringing funds that deal in cryptocurrencies under its regulatory ambit.

The SFC says in an announcement dated Nov 1 that it is adopting new measures within its regulatory remit to protect those who invest in virtual asset portfolios or funds.

It says licensing conditions will be imposed on firms that manage or intend to manage portfolios investing in virtual assets, irrespective of whether the virtual assets meet the definition of “securities” or “futures contracts”.

Furthermore, it has set out a conceptual framework for the potential regulation of virtual asset trading platforms.

An accompanying circular also provides detailed guidance and reminded firms that distribute funds investing in crypto assets that they should be registered with or regulated by the SFC and comply with its regulatory requirements, including the suitability obligations, when distributing these funds.

The SFC’s CEO Ashley Alder says the measures announced allows for the regulation of the management or distribution of virtual asset funds on one way or another so that investors’ interests “would be protected either at the fund management level, at the distribution level, or both”.

“We have also set out a conceptual framework to explore a pathway for compliance for virtual asset trading platform operators who are willing to be supervised by us,” he adds.

Under the framework, the regulator will explore whether virtual asset trading platforms are suitable for regulation in the SFC Regulatory Sandbox.

This will be done through observing the operations of interested trading platform operators and their compliance with proposed regulatory requirements in the sandbox environment.

The regulator says that at the end of this stage, if it is decided to regulate the operators, a license would be granted that will put them under supervision.

Or, if the risks involved cannot be sufficiently addressed, then no license will be granted.

Image courtesy of Hong Kong’s Securities and Futures Commission (SFC) website.

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