Hong Kong issues new rules to regulate cryptocurrency

Hong Kong’s financial watchdog unveiled this Thursday a comprehensive set of regulations for governing cryptocurrencies with an aim of making the city a major trading centre for virtual assets.

The new rules, announced by the Securities and Futures Commission (SFC), will target funds that invest in digital currencies as well as the trading platforms on which these virtual currencies are traded. The new regime will ban retail investors from trading bitcoin via these funds or platform, but allow professional investors.

The law in Hong Kong recognizes a professional investor as anyone with two years’ experience and can invest at least HK$8mn ($1.02m).

Another key stipulation will be that funds that invest more than 10% of their assets in virtual currencies will need to be licensed by the SFC, ending an era in which private equity funds could operate unregulated in the environment

“It will boost investor protection and hence attract more mainlanders to trade cryptocurrency assets in Hong Kong […] this will help Hong Kong to be among the top cryptocurrency trading centres worldwide because proper regulation is very important for attracting the big players,” Gary Cheung, chairman of Hong Kong Securities Association, said.

Global regulators have increasingly turned their attention to cryptocurrencies as the value of the digital assets skyrocketed in 2017.

“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,” said Ashley Alder (pictured) SFC chief executive.

The SFC will impose licensing conditions on firms which manage or intend to manage portfolios investing in virtual assets, irrespective of whether the virtual assets meet the definition of securities or futures contracts.

Mainland China imposed a complete ban on initial coin offerings and cryptocurrency trading exchanges in 2016, following a number of market manipulation and fraud cases.

Last week, Taiwan announced it would release dedicated rules governing Initial Coin Offerings (ICOs) by June next year, having previously chosen not to regulate the sector.

Pedro Gonçalves
Pedro Gonçalves is Financial Correspondent at International Investment.

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