Hong Kong Regulators Restrict Retail Investor Access to ‘Complex’ Crypto Products

The securities regulator and the central banking establishment of Hong Kong have up to date the area’s crypto coverage in response to enquiries from the business. In a round on the digital asset-related actions of intermediaries, the authorities launched extra measures to guard retail traders, proscribing their entry to what they describe as “complex products.”

Hong Kong Updates Regulations for Virtual Asset Service Providers in Light of Market Developments

Hong Kong’s preliminary strategy to regulating crypto belongings, adopted 5 years in the past, boiled right down to limiting numerous actions available in the market to skilled traders solely. Since then, nonetheless, the vary of funding merchandise providing publicity to digital belongings has expanded considerably and, for instance, regulators allowed crypto buying and selling platforms to serve retail traders.

In the sunshine of market developments and in response to an rising variety of enquiries from business gamers who need to additional develop retail entry to digital asset (VA) services, the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) have launched a joint circular updating their coverage in that regard.

The authorities identified that as a result of nonetheless uneven international regulatory panorama, the dangers they highlighted in 2018 are nonetheless legitimate right this moment. They additionally famous that as crypto platforms could also be unregulated or partially regulated, they is probably not topic to the identical requirements that apply to service suppliers within the conventional monetary area, posing extra dangers.

“As these risks are not reasonably likely to be understood by a retail investor, VA-related products are very likely to be considered complex products,” the regulatory establishments stated. Hence, intermediaries distributing such crypto merchandise ought to adjust to the SFC’s necessities for promoting advanced merchandise, the announcement emphasised.

The SFC and the HKMA insisted that investor safety measures, supplementing the necessities underneath Hong Kong’s advanced product regime, needs to be imposed to cowl particular dangers related to VA merchandise, pointing to a variety of abroad non-derivative merchandise equivalent to crypto exchange-traded funds (ETFs) and exchange-traded merchandise (ETPs) for instance.

The regulatory our bodies are satisfied that it’s essential to impose extra measures to guard traders. These embody permitting the providing of VA-related merchandise that are thought-about advanced solely to skilled traders. The authorities companies elaborated:

For instance, an abroad VA non-derivative ETF would very probably be thought-about a fancy product and it ought to solely be supplied to skilled traders.

Intermediaries must also assess whether or not retail traders have the data to put money into digital belongings or VA-related merchandise earlier than they course of a crypto transaction on their behalf. “If a client does not possess such knowledge, the intermediary may only proceed if it has provided adequate training to the client on the nature and risks of virtual assets,” the regulators stated. “Intermediaries should also ensure that their clients have sufficient net worth to be able to assume the risks and bear the potential losses of trading VA-related products,” they added.

Hong Kong got down to turn out to be a hub for crypto belongings and companies as a part of efforts to revive its standing of a worldwide monetary heart after the Covid-19 pandemic. The revised guidelines for the business come within the wake of the crackdown on JPEX. The fraud probe of the crypto change resulted within the suspension of a few of its actions and arrests in addition to elevated regulatory scrutiny over your complete sector. Earlier in October, the SFC and the Hong Kong police formed a special unit to observe cryptocurrency exchanges.

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