Hong Kong Regulator: Sandbox First, Crypto Licences Could Follow

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Hong Kong’s Securities and Futures Commission (SFC) is proposing a sandbox approach to cryptocurrency regulation. The idea was tabled by SFC chief executive Ashley Alder during a speech to delegates at this week’s Hong Kong Fintech Week 2018.

Alder said Hong Kong has seen the arrival of some of the worlds biggest platforms but there exists “a sizeable population of investors who have an interest in trading virtual assets through unregulated trading platforms”. A sandbox approach would allow the regulator to discover if it would be appropriate for crypto exchange operators to be regulated, Alder argued.

“If, and only if, we decide at the Sandbox stage that we should regulate, we would consider granting a license… the platform would then be subject to intensive reporting and monitoring to ensure that strict internal controls operate as expected and investor interests are protected.”

In a recent survey conducted by the Hong Kong Blockchain Association (HKBA), it was revealed that 23% of Hong Kong residents would consider investing in cryptocurrencies, given a recession. The response was based on the fact that many respondents anticipated a downturn in the world economy within the next year. Reportedly, a large portion of those surveyed would consider investing in cryptocurrency, despite their current concerns about digital currencies outweighing their potential advantages. Relevant to SFC concerns expressed at the Hong Kong Fintech Week was the fact that 60% of the respondents indicated that they felt that clear regulations and proper licensing laws were needed for cryptocurrency exchanges.

Alder said that the SFC had plans to clarify new regulatory standards for fund managers and that those investors coming on board with a mixed portfolio of more than 10% of virtual assets would need to follow the new requirements, regardless of whether the assets were “securities” or “futures contracts”. In the meantime, only professional investors should be allowed to trade until further guidance from the regulator is made public. The sandbox idea appears to fill in the cracks until more lasting regulatory plans can be formulated. In February the SFC said that it would crack down on unlicensed cryptocurrency exchanges.

Meanwhile, the blockchain sector is beginning to feel the pinch with a lack of qualified professionals to fill positions. A “talent list” has been issued by the Government of the Hong Kong Special Administrative Region in which it states that it needs “quality people from around the world in a more effective and focused manner to support Hong Kong’s development as a high value-added and diversified economy”. Among the 11 professions on the new list are those with DLT skills.

 

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