In late 2018, the Hong Kong Securities and Futures Commission (SFC) introduced licenses to cryptocurrency funds and related investment managers allowing them to sell digital asset products to their customers. One year in since the announcement, a number of fund managers have complained that the authorities are frustrating their efforts to carry out their businesses. In lieu to this, the authority is focusing on creating a new regulatory framework for crypto.
A Very Few Fund Managers in Hong Kong Granted Licenses
According to a Reuters report, very few managers have since been able to acquire the licenses from the SFC as the government looks to protect investors from virtual currency scams. One of the CEOs of the few digital asset funds in the country to gain approval, Diginex, Richard Byworth, approves of the government actions as he feels that it builds the trust of investors.
“We believe it is vital to be regulated to build trust with our clients but also in the industry.”
Hong Kong companies leaving for off-shore jurisdictions
The stringent jurisdictions by the SFC are forcing Hong Kong based funds to domicile abroad. Market participants are finding home abroad citing the tough regulations in Hong Kong as a reason. The move seems judicious as offshore jurisdictions offer a friendlier environment to carry out operations.
While stringent laws are a factor causing the massive exodus of crypto based funds, analysts also say that the relative infancy of the market is also a factor as crypto funds still developing systems for custody, audit, cybersecurity and other operational necessities.
Rocky Mui, a partner at Clifford Chance in Hong Kong, said,
“My take is it is more an operational and infrastructure issue, than the regulator being obstructive.”
The problem facing fund managers is however set to be solved by the recent plans announced by the top financial authority.
Financial Regulator to Launch Crypto Regulatory Framework
Despite the current issues in licensing fund managers, Hong Kong remains a world-leader in crypto regulation with the SFC set to introduce a new crypto framework.According to a post on Reuters on Nov. 6, SFC’s Chief Executive Ashley Alder, announced a new crypto regulation framework that covers KYC/AML rules, custodial services and trading of digital assets in the crypto industry in Hong Kong. Furthermore, the framework will provide a guide to solve the extensive problems currently being faced by crypto investors and fund managers in the crypto industry.