(Yicai Global) Nov. 2 -- Hong Kong authorities have proposed including virtual asset portfolio management firms and distributors within the scope of the special administrative region's Securities Regulatory Commission.
"The measures announced today allow us to regulate the management or distribution of virtual asset funds so that investors' interests are protected either at the fund management level, at the distribution level, or both," said Ashley Ian Alder, the SFC's chief executive. "We hope to encourage the responsible use of new technologies and also provide investors with more choices and better outcomes."
The regulator referred to virtual assets as digital promissory notes (such as cryptocurrencies, functional tokens, or tokens with securities or assets as a collateral) and assets akin to virtual goods and encrypted assets, in a statement.
For virtual asset portfolio managers which plan to invest 10 percent or more of a managed portfolio's gross asset value in virtual assets, their actions will be subject to the SFC's oversight, irrespective of whether these virtual assets amount to "securities" or "futures contracts," the body said.
The approach will help Hong Kong to become one of the world's top cryptocurrency trading hubs, as appropriate regulation is vital for attracting large firms, Zhang Weiguo, chairman of the Hong Kong Securities Association, said. The SFC's regulatory measures are likely to mark the start of explorations of such activities in free trade zones on China's mainland, insiders speculated. If the initiative is successful, authorities have not ruled out bringing in the same measures to open up the virtual currency investment in the Mainland.
Only professional investors as defined under the Securities and Futures Ordinance will receive the go-ahead to invest in any virtual asset portfolios, the SFC added.
The SFC intends to set licensed operators apart from those which do not seek a license. "We have also set out a conceptual framework to explore a pathway for compliance for virtual asset trading platform operators who are willing to be supervised by us," Alder added.
Exploring approaches to regulating virtual currency trading platforms is a mechanism where the government gives some innovative financial institutions a chartered right to test new products and services in a small scope that regulators can control. Under this system, qualified firms will receive closer monitoring from the SFC. To minimize risk exposure to investors, the SFC may impose licensing conditions such as limiting the types of clients these firms serve or each client's maximum exposure.
Editor: William Clegg