Hong Kong is tightening its regulatory grip on cryptocurrency exchanges and related businesses by bringing them under the purview of the Securities and Futures Commission (SFC), as reported by Asia Nikkei Review on Dec. 17.
While part of Chinese territory, Hong Kong follow a different judicial approach to the Mainland. The treatment has resulted in hundreds of token issuances, exchanges, and other crypto-related businesses setting-up shop in the city-state.
The move is contrary to Hong Kong’s famed free-market approach towards businesses. Traditionally, entrepreneurs are provided with a lenient operational environment and a legal framework that eliminates excessive government inference. However, growing concerns over fraud, money laundering, and a general lack of regulatory oversight have prompted the regulatory authorities to establish greater oversight over digital assets in the region.
Hong Kong established a fintech “sandbox” in November to evaluate the effect of virtual currency businesses operating in the city, and consequently, the SFC determined that greater oversight was needed.
In October, after the sandbox assessment, the SFC passed a guideline stating all investment funds with more than 10 percent of their assets under management in cryptocurrencies and token-centric businesses must obtain a license. Furthermore, these services are strictly limited to accredited investors.
The regulator’s move is not uncalled for; in February 2018, the SFC sent stern warning letters to seven local crypto-exchanges after allegations of market manipulation and misappropriation of assets were voiced by customers. Not only that, in some cases investors were unable to withdraw both fiat and cryptocurrencies.
Global Regulation on the Rise?
As a financial center with proximity to China, access to the Far Eastern market, and liberal taxation policies, Hong Kong’s actions reflect both its reputation in the global markets and the moves of leading economies in the world.