Hong Kong tightens cryptocurrency regulation and implements stricter controls

Written by Shalini Nagarajan, blockworks Translated by Good Oppa, Golden Finance

Hong Kong's central bank and securities regulator have stepped up regulation of cryptocurrencies following a major scandal that allegedly affected more than 2,000 victims. The revised guidelines state that specific virtual currency products are now only available to professional investors. **

In a joint blog post on Friday, the Securities and Futures Commission and the Hong Kong Monetary Authority highlighted that some of the risks associated with virtual assets may be too complex for retail investors to understand.

For example, overseas virtual asset (VA) non-derivative exchange-traded funds (ETFs) are often classified as complex products and are only suitable for professional investors. The authorities also stressed that intermediaries need to verify their clients' understanding of investing in virtual assets or related products before entering into any transactions. In addition, intermediaries must confirm that clients have the financial stability necessary to absorb the risks and potential losses associated with trading VA-related products.

According to the blog, some VA-related derivatives listed on SFC-approved exchanges are allowed to retail investors in some regions.

These products, such as VA futures contracts and certain VA funds, are regulated and therefore safer for the average investor. Because these products are subject to rules, prices are clearer and there are fewer opportunities for market fraud, authorities said. These products are open to all investors, not just professional investors, as they are seen as safer and more transparent. Any exchange-traded VA-related derivative products, even those traded on a designated exchange, are considered complex unless they meet the non-complex types listed on the SFC's website. Intermediaries that already serve unqualified companies and individual investors in VA transactions must update their systems to meet the new standards and have a three-month transition period. Those planning to start or expand VA services will need to comply before complying with the new regulations.

The revised guidelines were issued to address follow-up issues with Hong Kong-based cryptocurrency exchange JPEX. The exchange, which was involved in a $200.7 million scandal and a massive enforcement crackdown, lured investors with promises of returns of up to 20 percent. The platform stopped withdrawals under regulatory warnings, leaving many people in trouble, including those who had invested their life savings.