Hong Kong’s Securities and Futures Commission (SFC) has announced an update on its crypto policies ‘in light of the latest market developments and enquiries from the industry.’
According to a circular posted on the SFC’s website, the SFC has received ‘an increasing number of enquiries from intermediaries about distributing virtual asset-related products to investors’.
In addition, the circular also notes that since the SFC formulated its regulatory approach for such assets in 2018, the virtual assets space has evolved significantly and begun to expand into mainstream finance.
As such, the SFC’s policy has to be updated to take these developments and enquiries into account.
Given that crypto products are becoming more and more complex, the HK SFC has now deemed it necessary to impose additional investor protection measures on the distribution of crypto products.
Firstly, crypto products that the SFC considers ‘complex products’ can only be offered to professional investors. According to the updated requirements, crypto ETFs and products issued outside of Hong Kong would be some examples of ‘complex products’
Before offering a product to an investor, distributors of such products should ensure that their clients have knowledge about investing in these complex crypto products, and have sufficient net worth to be able to assume the risks and bear any losses that arise from trading these products.
These distributors should also provide information and warning statements to clients about these products, as well as the appropriate diosclosure statements for virtual assets.
Secondly, distributors should also ensure that clients do not overinvest, and se limits for each retail client to ensure that their exposure to crypto assets is reasonable.
The circular comes on the back of a scandal in Hong Kong. In September, clients of a local cryptocurrency exchange known as JPEX found themselves paying unreasonably high transaction fees for withdrawals.
JPEX executives and even several prominent local artistes have been arrested in a large-scale fraud investigation into the company’s activities.
The company had claimed to be licenced by the SFC, though the SFC later clarified that it had received no such application from JPEX.
Users claimed that they had lost millions of dollars, and the SFC received more than a thousand complaints related to JPEX.
It is unclear if the new rules were created specifically to deal with the JPEX scandal. However, Hong Kongers remain wary about crypto, with a recent survey by the Hong Kong University of Science and Technology finding that public attitudes towards crypto have soured significantly since the JPEX scandal.