To adapt to the evolving landscape of the crypto industry, the Hong Kong Securities and Futures Commission (SFC) has made significant updates to its virtual asset policy. These changes, outlined in a joint circular with the Hong Kong Monetary Authority (HKMA), aim to regulate the distribution of virtual asset-related products and services. The policy, which was last revised in 2018, is being adjusted to account for the rapidly evolving landscape of crypto assets and the growing interest from intermediaries.
Opening Doors for Retail Crypto Investors
The SFC and HKMA have observed a surge in inquiries from intermediaries regarding virtual asset-related products (VA-related products) and the provision of virtual asset-dealing services. To address this, the policy has been revised to provide more detailed guidelines and protection for investors.
The main changes include a distinction between professional and non-professional investors in distributing VA-related products. Complex VA-related products will now only be available to professional investors, while non-professional investors must undergo assessments of their knowledge regarding virtual assets. If they lack this knowledge, intermediaries must provide appropriate training.
Despite the increasing popularity of virtual assets globally, regulatory standards remain inconsistent. The risks associated with virtual asset investments, such as lack of regulation for service providers and potential market manipulation, continue to exist. Consequently, VA-related products are considered complex and subject to strict suitability requirements.
In addition to the complex product requirements, the SFC and HKMA have introduced further investor protection measures for specific risks related to these products. Selling restrictions will now be imposed on complex VA-related products, limiting their distribution to professional investors. Intermediaries must also conduct virtual asset-knowledge tests for non-professional clients.
Regarding the provision of virtual asset dealing services, intermediaries will now only be allowed to partner with SFC-licensed platforms, ensuring a higher level of investor protection. Furthermore, the SFC and HKMA have emphasized that intermediaries should be cautious when providing financial accommodation for VA-related products. They should ensure clients have the financial capacity to manage potential losses.
These updates aim to protect crypto investors in the ever-expanding world of virtual assets. Intermediaries are expected to align their systems and controls with these new requirements, and new entrants or those extending their services must ensure compliance from the outset.
The SFC and HKMA also stress the importance of informing them of any intentions to engage in activities related to virtual assets and tokenized securities and to provide notifications of any changes to these activities.
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