By Yet another week in the world of cryptocurrency and another step achieved for regulation. Hong Kong’s Securities and Futures Commission (SFC) released a statement earlier today which stipulates the regulatory standards which will define the direction of virtual assets portfolio managers & fund distributors.
The Hong Kong regulator previously proposed this framework in a research paper which was published last month.
Subsequent reforms became imperative due to the inherent leverage found within possessing virtual assets via funds and the apparent awareness of investors surrounding the presence of various unlicensed trading operators within the nation.
In lieu of this growing trend, the SFC has begun exploring different conceptual frameworks in an effort to come up with the regulations which will become binding law for virtual asset trading platform operators.
Securities regulators are also on the same page pertaining to investor protection risks that are faced with regards to virtual assets.
An excerpt from the SFC statement:
“While virtual assets have not posed a material risk to financial stability, there is a broad consensus among securities regulators that they pose significant investor protection risks. The regulatory response to these risks varies in different jurisdictions, depending on the regulatory remit, the scale of the activities and their impact on investor interests and whether virtual assets are deemed financial products suitable for regulation.”
It must, however, be noted that there have been some variances within the regulatory response to these risks across various jurisdictions. Currently, under the existing remits in Hong Kong, the actual, legal definition of “securities” or that of “future contracts” paints a conjectural mark on the SFC’s ability to exercise their oversight functions on various forms of virtual assets.
This means that investors who have taken to trading crypto through the means of unregulated trading platforms might be in hot water.
The Risks:
Due to the fact that virtual assets generally lack any intrinsic value, this makes them extremely volatile. On the opposite end of the spectrum, fiat currencies which we know to have globally accepted principles of valuation, virtual assets, on the other hand, are driven by supply & demand and for the most part crypto enthusiast FOMO or fear of missing out as well as FUD or Fear, Uncertainty and Doubt which of course magnifies the volatility of them.
Another factor to consider is that due to the lack of acceptable standards in gaining evidence for the existence & ownership of virtual assets are what make them relatively impossible to glean any reasonableness behind their valuations.
Lastly, due to the anonymity of digital or virtual assets, they’ve have become catalysts and tools for illicit activities such as money laundering, fraud and even terrorist funding.
New Reforms Within Regulation:
With the SFC’s new regulatory stance, a notable portion of virtual assets is now under the definition of “securities” or “future contracts”.
Furthermore, in addition to the SFC’s most recent framework “firms managing funds which solely invest in virtual assets that do not constitute securities or future contracts” will be under obligation to seek & apply for licenses for dealing in securities and the distribution of such funds in Hong Kong.
The SFC’s scope will also include firms which have licenses or might require licenses for the management of portfolios in both future contracts & securities.
Could the SFC’s new framework pave the way for other Asian country’s crypto regulations? Let us know your thoughts.
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