Hong Kong strengthens crypto oversight and imposes tighter controls

Hong Kong’s financial authorities have deemed many virtual asset-related products too complex for retail investors, restricting them to professionals.

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Patrick Foto/Shutterstock, modified by Blockworks

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Hong Kong’s central bank and securities regulator have tightened crypto regulations after a major scandal allegedly affecting more than 2,000 victims.

The revamped guidelines mandate that specific virtual currency offerings will now be exclusively available to professional investors.

In a joint blog on Friday, the Securities and Futures Commission and the Hong Kong Monetary Authority highlighted that certain risks associated with virtual asset-related products may be too complex for retail investors to grasp.

For instance, an overseas virtual asset (VA) non-derivative exchange traded fund (ETF) would typically be classified as a complex product, suitable only for professional investors.

The authorities also emphasized that intermediaries need to verify clients’ understanding of investing in virtual assets or related products before proceeding with any transactions.

Additionally, intermediaries must confirm that clients possess the necessary financial stability to shoulder the risks and potential losses associated with trading in VA-related products.

Some VA-related derivative products available on SFC-approved exchanges are authorized for retail investors in certain areas, according to the blog.

These products, like VA futures contracts and certain VA funds, are regulated, making them safer for everyday investors.

Because these are overseen by the rules, there’s clearer pricing and less chance of market tricks, the authorities said. These products are available to all investors, not just professional ones, because they’re seen as more secure and transparent.

Any exchange-traded VA-related derivatives, even those on a specified exchange, are viewed as complex products unless they match the types listed as non-complex on the SFC’s website.

Intermediaries already serving non-qualified corporate and individual investors in VA dealings must update systems to meet new standards, with a three-month transition period. Those planning to start or expand VA services need to comply before proceeding.

The updated guidelines come as authorities look to address the fallout from Hong Kong-based crypto exchange JPEX, embroiled in a $200.7 million scandal and massive enforcement crackdown, which lured investors with promises of returns as high as 20%.

The platform ceased withdrawals amid regulatory warnings, leaving many, including those who invested life savings, in dire straits.


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