Hong Kong SFC Mandates Virtual Asset Funds To Only Invest Through Licensed Platforms

The Securities and Futures Commission (SFC) in Hong Kong mandates virtual asset funds to invest through licensed platforms exclusively.

According to the Joint circular on intermediaries’ virtual asset-related activities, the regulatory approach established in 2018 limits these investments to “professional investors” only. 

SFC-licensed virtual asset trading platforms must adhere to a comprehensive set of regulatory requirements, encompassing safe custody of assets, Know-Your-Client processes, anti-money laundering/counter-financing of terrorism (AML/CFT), avoidance of conflicts of interest, and criteria for admitting virtual assets for trading. 

Additionally, licensed Virtual Asset Fund Managers are obligated to retain records related to their business as outlined in Appendix 7.

The Hong Kong Regulatory Regime

Hong Kong introduced its new cryptocurrency regulations back in June. Instead of limiting trading in digital assets to professionals and dealers with at least $1 million in bankable assets, the new rules allow regular investors to trade virtual assets.

In keeping with the new rules, the SFC has begun licensing cryptocurrency exchanges. The first cryptocurrency exchanges in the city to obtain SFC licenses are OSL and Hashkey Group. Additionally, they benefit from the largest online-only bank in Hong Kong, ZA Bank, offering crypto-to-fiat conversion services. 

The bank enables cryptocurrency deposits made by users of the trading platforms to be withdrawn in US dollars, Hong Kong dollars, and Chinese yuan. The SFC received an application from the cryptocurrency exchange Hong Kong VAEXC (VAEX) for a virtual asset trading platform license. 

The Hong Kong government has accelerated the certification procedure for cryptocurrency goods to encourage business compliance following reports of the JPEX incident, considered the biggest financial fraud in the city’s history. 

It’s crucial to stay informed about the licensing conditions, as exemplified by the Hong Kong SFC publishing licensing conditions, which apply to virtual asset fund managers and are subject to variations and elaborations relevant to certain situations.