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SFC Publishes New Regulations Affecting Virtual Asset Owners in Hong Kong

October 8, 2019
Ross Peili


SFC Publishes New Regulations Affecting Virtual Asset Owners in Hong Kong

HONG KONG – The Securities and Futures Commission (SFC) published a new regulatory framework subjecting what they call “Virtual Asset” portfolio managers, fund distributors and trading platform operators, earlier this month, on October 4th. 

The regulation mainly focuses on the new terms and conditions licensed business who manage or are looking to manage portfolios with a stated investment objective to invest in virtual assets, will have to follow in order to be able to operate with a green light.   

The publication entitled “Proforma Terms and Conditions for Licensed Corporations which Manage Portfolios that Invest in Virtual Assets” cites that the new terms and conditions will affect all businesses involved in the digital assets sector, even if there will be minor variations and elaborations depending on the scenario and each respective company’s business model. 

The 37-sheet document manages to define virtual assets as “digital representations of value which may be in the form of digital tokens”, which tokens, in their own turn could be anything from private or public digital currencies, securities, utility tokens, physical asset-backed tokens and more. 

The regulations are effective immediately, and local companies related to digital assets should comply with the new rules, advising their respective “case officer”.

For cryptocurrency investing firms and fund managers, a soft-cap of $3 million Hong Kong dollars must be met by the firm, while additional third-party custodians should be hired as traditional assets and crypto assets are mandatory to keep separate. 

We shouldn’t forget that Hong Kong is part of the Queensland Alliance, and its essentially a UK colony in China, hence the HK Dollar and not the Chinese yuan. 

The major difference between HK and China is the fact that HK operates under an international financial framework, while China has a strong, yet internal-focused circular economy.

Therefore HK’s new regulations on virtual asset owners are closer to Western aspects on the subject, and not an extension of a state-owned monopoly. 

When it comes to mainland China, regulations regarding digital and crypto assets are already a thing of the past, with the People’s Bank of China planning its own national stablecoin pegged to the Chinese yuan, similar to USDT, to be released as soon as in the next half-year. 

In China’s case, companies such as AliPay, Tencent, WeChat, and UnionPay among others, will distribute the national digital currency, which is confirmed to be called DC/EP for Digital Currency / Electronic Payments, as they practically already overwatched and regulated the digital payments network of the country. 

Read the regulatory framework in the EU and Americas so far, or learn more about the Chinese national digital currency.