January 31, 2022
Hong Kong regulators have issued a new guideline on crypto assets which lays out the rules of the game for the emerging asset class in the city.
Here is what you need to know
- In a joint circular issued by the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) on Friday (January 28), Hong Kong authorities said that retail investors would be banned access to financial products that directly invest in digital assets.
- The circular said that virtual assets products are likely to be “complex products” and distribution of these products by financial intermediaries will need to comply with the SFC’s guidelines. These requirements include ensuring suitability, providing specific risk-related disclosures, and conducting proper due diligence on the product (including understanding their risks and features), the investor target and the regulatory status, regardless of whether there has been a solicitation or recommendation.
- Overseas virtual assets (VA) non-derivative Exchange Traded Funds (eg, Greyscale Trust) or other ETFs that invest directly in VAs are likely to be complex products, and should only be offered to “professional investors” (PIs), subject to suitability requirements.
- The exception is for a limited number of overseas VA-related derivative products traded on exchanges specified by the SFC to be acceptable, and which have been approved for retail distribution by their relevant home regulators. For those products, they may be distributed without the need for complying with suitability requirements (if there is no solicitation or recommendation), but the Intermediaries must still conduct a “VA Knowledge Test.”
- A professional investor in Hong Kong is defined as an individual with a portfolio of at least HKD$8 million, or about US$1 million.
- The latest directive comes as a significant addition to the set of guidelines the SFC promulgated back in November of 2018, and also “materially tightens” the scope for conducting VA-related activities in Hong Kong, according to Gaven Cheong, partner and head of investments (legal) at consultancy PwC.
About the author
Tsering Namgyal is the chief content officer at Blockchain Asset Review.