Hong Kong’s Securities and Futures Commission (SFC) has announced its plans to update its framework for cryptocurrency sales and requirements in response to the evolving market development of the digital asset industry. The SFC’s upcoming amendment notice addresses five major aspects related to the crypto industry, which include the distribution of virtual asset (VA)-related products, provision of crypto dealing services, asset management platforms, advisory services, and implementation steps.

The SFC acknowledges that while the popularity and reach of VAs have grown, the global regulatory landscape remains inconsistent. The risks associated with investing in digital assets, such as anti-money laundering (AML) and counter-financing terrorism (CFT), still exist. However, due to the rapid growth of the cryptocurrency regulatory landscape, investor protection is the SFC and Hong Kong authorities’ top priority.

To mitigate risks associated with these assets, updated stringent measures and requirements will be implemented. The comprehensive amendment notice specifies that restrictions will be imposed on the sale of certain assets. For instance, VA-related complex products, including crypto exchange-traded funds and products outside Hong Kong, will only be available to professional investors. Intermediaries associated with the crypto space will assess investors’ knowledge of trading in VAs before facilitating transactions.

While Hong Kong currently lacks specific legislative policies to regulate virtual assets, several financial regulators, including the Hong Kong Monetary Authority (HKMA), SFC, and Insurance Authority (IA), have released guidelines to oversee the industry. If a VA possesses security characteristics as defined under Cap 571 of Hong Kong’s Securities and Futures Ordinance (SFO), it will be regulated by the SFC and relevant laws.

The SFC’s decision to update its regulatory framework follows a series of complaints from over 2,300 users of the JPEX crypto exchange, resulting in millions of dollars of losses. The SFC discovered that the Dubai-based exchange had been operating without a license for VA trading. It was found that most victims were novice investors who were promised high returns. The exchange collaborated with influencers to advertise unregistered products and services.

To prevent such scandals and ensure investor protection, the SFC and the Hong Kong Police Force (HKPF) have partnered to establish a dedicated group to combat illicit activities in the crypto sphere. The group will continue its investigation into the JPEX scandal, and more arrests are expected to follow.

Source: Securities and Futures Commission (SFC)


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