Be it crypto exchanges, traders, investors, crypto-based companies or institutions; all will be put under tighter oversight of the Securities and Futures Commission (SFC) in Hong Kong. The country is set to make the cryptocurrency rules stricter.
The ban on crypto related commercial activities in mainland China, has naturally pivoted the attention on Hong Kong for initial coin offerings (ICOs). The situation becomes more congenial for the crypto related activities as Hong Kong offers less stringent rules on the digital currency in comparison to China. Yet at the same time, the growing number of crypto fraud, crypto hacking, money laundering, theft, etc has pushed Hong Kong to take the security steps more seriously.
SFC, therefore, has put forward investment and trading guidelines to watch over the crypto activities in the country. According to the new regulations, a license will be required for any investment funds which comprise more than 10 percent of Bitcoins or any other cryptocurrency coins or tokens. Further, these funds can only be sold off to professional investors. Further to this, companies in the country can only issue ICOs for only those tokens that pass the requirements of the SFC. One of the regulations, for instance, is that the tokens must exist for at least a period of 12 months before getting the SFC license.
Cryptocurrency exchanges are provided with ‘regulatory sandbox concept.’ According to this scheme, crypto exchanges of Hong Kong are allowed to test the digital currency products and the related services temporarily, before the exchange takes a decision on whether to get a license.
The need to tighten the rules and regulations are based on local experiences within the country. In February this year, investors from seven different Hong Kong-based local exchanges were unable to withdraw fiat currency or cryptocurrency from their accounts. SFC sent warning letters to these exchanges after the incident. Some of the crypto exchanges were alleged for asset embezzlement and manipulate the market. Later in March, SFC ordered ‘Black Cell Technology’ to stop its ICO. The commission also accused the company with illegal promotional exercises.
What Hong Kong is doing reflects and sits well with the growing need to regulate the crypto world. A similar thought was reflected in the G20 summit in Buenos Aires early this December when the forum declared that-
“We will regulate crypto assets for anti-money laundering and countering the financing of terrorism in line with Financial Action Task Force (FATF) standards, and we will consider other responses as needed.”
The need of tightening the rules and regulations around the growing cryptocurrency industry is taken as a common global aim by the 20 countries of the G20 summit which include- Argentina, Australia, Brazil, Canada, China, the European Union, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the UK, and the U.S.
According to Daisuke Yasaku of the Daiwa Institute of Research, Hong Kong being the financial center which is closely linked to mainland China is taking the much-needed measures in the right direction. These actions involve requiring identity verification for transactions. He further warned that the price of the regulations would be quite high. According to Yasaku, the number of inspections and frequency of monitoring of crypto exchanges, the number of times an exchange has to report to its higher authority, will be highly dependent on the design of its platform.
On the other hand, a law firm manager, Timothy Loh said, ‘The requirements of the SFC initiative may prove too burdensome for some operators.’ There is a possibility of withdrawal from joining the new proposed regulatory framework from some exchanges in order to sustain their current market shares and position.
There is another argument to be rolling in the scenario. This school of thought predicts that some institutional investors may withdraw their participation in the market base on the higher trading expenditure. This withdrawal may make Hong Kong lose the opportunity of making the crypto market to get stabilized with the presence of the institutional investors. Whereas some say that short-sightedness may highlight the discomfort and make tight regulations appear to be as some burden; but in the long run the same will prove to be a source of solid investor confidence and thus, will boost the economy of the country to higher levels.