The SFC’s move has come amidst a global push for regulatory frameworks in order to make crypto investments a lot safer and more streamlined.

Hong Kong’s New Rules for Crypto Funds

Per the new rules, fund managers who invest more than 10 percent of their portfolio in digital assets have to be licensed. As for trading platforms that only serve professional investors, those can opt to enroll in a “sandbox” that gives them the liberty to experiment with and check the compatibility of their products with the new rules.

Meanwhile, some analysts are of the view that the new rules are pretty stringent and could potentially deter many crypto firms from trying out the sandbox. For example, under SFC’s new guidelines, firms can not offer any financial incentives to users and neither can they allow trading of futures and derivative contracts.

The watchdog has also asked crypto exchanges to abide by the rules to ensure fair treatment of clients and prevent market manipulation.

This marks the first concrete step by the Hong Kong government to introduce a well-defined regulatory environment for the crypto space that has been gaining traction among retail and institutional investors alike.

Worth noting here is that Hong Kong has traditionally adopted a far more liberal approach while dealing with the digital assets market — especially compared to Mainland China where the government has brutally cracked down on the asset class over the past one year or so. Cryptocurrency exchanges and all related activities are considered legal in the Special Administrative Region, although a formal regulatory framework is still pending.

SFC is Considering More Direct Supervision of the Crypto Space

SFC has hinted that it could tighten its grip on the burgeoning crypto industry by initiating more direct supervision of the asset class and the related activities.

[…] It is proposed that the standards of conduct regulation for virtual asset trading platform operators should be comparable to those applicable to existing licensed providers of automated trading services,” the securities watchdog explained.

It pointed out that Hong Kong currently hosts some of the world’s most popular cryptocurrency trading platforms, although none of them come under the regulatory ambit of the SFC or other agencies. Therefore, the watchdog added, in order to protect investors from trading malpractices and financial crimes:

“The SFC considers it necessary to explore in earnest whether and if so, how it could regulate virtual asset trading platforms under its existing powers.”

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