The
Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority
(HKMA) are responding to the changing landscape of virtual assets (VAs). The
regulators have updated their policies with increasing inquiries from intermediaries
about distributing crypto-related products and services.
From the
reading of the latest circular, it appears that cryptocurrencies are
“complex products” that should be available only to professional
investors, while others should undergo appropriate training to trade them.
However, the problem is that such products’ definitions are quite vague.
In 2018,
the SFC’s initial approach towards virtual assets included restrictions aimed
primarily at “professional investors.” However, the rise of virtual
assets in mainstream finance has prompted a review. The SFC now permits
SFC-licensed virtual asset trading platforms to cater to retail investors and
has greenlit virtual asset futures exchange-traded funds for public offering in
Hong Kong.
The updated
policy focuses on intermediaries wishing to engage in virtual asset activities,
reflecting the latest market trends. This revised guideline will replace the
joint circular from 28 January 2022 on the same subject.
Despite
growing global interest in virtual assets, the regulatory landscape remains
inconsistent. The SFC has identified risks, like potential market manipulation
and lack of pricing transparency, which retail investors may not readily
understand. Consequently, intermediaries must comply with SFC’s requirements,
especially when dealing with complex products.
Considering
these risks, the SFC and the HKMA have proposed additional investor protection
measures. These include selling restrictions, ensuring that only professional
investors can access certain complex products, and a virtual asset-knowledge
test for clients.
In
practice, at least a few issues arise.
The Hong Kong SFC updated its virtual asset policy. The first is that virtual asset products that are considered complex products should only be sold to professional investors. The second is that for non-professional investors, intermediaries should first assess the relevant…
— Wu Blockchain (@WuBlockchain) October 21, 2023
Mixed Signal from SFC and
HKMA
The regulatory
explanation of what constitutes “complexity” is rather ambiguous. For
example, the authors suggest that a foreign VA non-derivative ETF would most
likely be categorized as a complex product, suitable only for professional
investors….
