As Hong Kong seeks to become the leading crypto hub in Asia, the lawmakers have made assertive strides to provide regulatory clarity on digital assets. In an official announcement, the Hong Kong Securities and Futures Commission (SFC) revealed plans to amend the existing law on digital assets.
The report demonstrated that the SFC plans to revise the laws on selling virtual assets and existing requirements. Reflecting on the changes in the crypto industry and the ever-changing consumer need, the SFC confirmed that the proposed amendments will play a critical role in improving the attractiveness of the digital sector.
Hong Kong Seeks to Provide Regulatory Clarity on Digital Assets
According to the announcement, the SFC team underlined that the amendment of the crypto regulations will restrict professional clients from accessing some of the digital assets. The SFC noted that revising the crypto laws would mandate the key players to fulfil some of the requirements to operate compliantly.
The report indicated that before buying and selling crypto assets, the intermediaries would be required to assess the customer’s understanding of the benefits and risks associated with digital assets. After examining whether the customer understands the fundamental principles of crypto, the intermediary will facilitate the buying and selling of digital assets.
However, under certain conditions, intermediaries can offer digital-related services to the crypto unsavvy investor only if they promise to educate their clients promptly. The SFC report demonstrates that institutional and professional clients will only be exempted from the assessment test.
Risks Associated with Crypto Assets
The preventive measures proposed by the SFC aim to provide regulatory clarity for digital assets. In the report, the regulators admitted that the crypto sector has recently gained popularity despite the uncertainty battling the virtual world.
In 2018, the SFC conducted a risk assessment test to examine the risk associated with crypto assets. The SFC regretted that the risk identified was still applicable to date.
Besides the risk linked to digital assets, the SFC describe crypto as vast and complex. In the report, the commission underlined that crypto exchange-traded funds (ETFs) were among the complex virtual assets.
The SFC described foreign financial products as complex. Despite the difference between the various financial products, the SFC treats the financial products similar to crypto assets according to the existing guidelines.
The commission noted that complex crypto assets should be offered to professional clients. The SFC’s latest development has ignited heated debates among Hong Kong crypto enthusiasts.
Impact of JPEX Saga on the Crypto Industry
In a separate report, some investors considered the amendment of the crypto regulation emanating from the JPEX saga that exposed the customer to a loss of over $200 million.
In reference to an earlier post, the SFC claimed to have received over 1000 complaints related to the JPEX saga. From the numerous complaints, the SFC collaborated with the local law enforcers to bring down around six executives involved in the scandal.
The collaborative approach enabled the SFC and the Hong Kong Police Force (HKPF) to create a task force. The task force’s primary objective was to identify unlawful crypto activities that damaged Hong Kong’s reputation.
Following the JPEX scandal, Hong Kong investors have shifted their interest to other opportunities with lower risk. A Hong Kong University of Science and Technology study demonstrated that 41% of investors are sceptical about investing in digital assets.
The regulators noted that the JPEX saga instilled fear among the crypto investors. To prevent the recurrence of the JPEX scandal, the regulators underscored the need to educate the investors on the risk associated with crypto assets.
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