• Hong Kong is selling a risk-based digital asset regime whereas establishing itself as a regulated fintech hub.
• Proposed rule adjustments might get rid of the ten% cryptocurrency exemption for asset managers, growing compliance calls for.
• Trade teams have warned that stricter licensing and custody guidelines might restrict prudent cryptocurrency publicity by funds.

Hong Kong’s method to regulating digital property got here into focus this week after the town’s finance chief outlined its technique on the worldwide stage, whilst some within the monetary trade expressed issues about proposed rule adjustments at house.

Talking at a closed-door workshop through the World Financial Discussion board Annual Assembly in Davos, Switzerland, Hong Kong’s Finance Secretary Paul Chan Mopo defined that Hong Kong’s digital asset regime is designed to stability innovation and monetary stability. Mr Chan stated finance and expertise have gotten more and more interconnected, requiring oversight to assist growth whereas addressing systemic dangers.

In accordance with Chan, digital property have the potential to extend transparency, strengthen threat administration processes and allow extra environment friendly capital flows. He reiterated Hong Kong’s regulatory rules of “similar actions, similar dangers, similar laws” and framed it as the premise of what authorities contemplate accountable and sustainable market growth. Mr Chan additionally stated that governments and regulators see themselves as market enablers and lead by instance by means of coverage and implementation.

Hong Kong has prioritized its position as a regional fintech hub in recent times. Chan famous that the town has issued three tokenized inexperienced bonds since 2023, totaling US$2.1 billion. He additionally pointed to the prevailing licensing regime for digital asset buying and selling platforms and a pilot program launched by the Hong Kong Financial Authority final November to facilitate real-value buying and selling utilizing tokenized deposits and digital property.

Trade backlash in opposition to proposed rule adjustments

Whereas authorities are pushing for clarification of laws, trade teams are exhibiting reluctance. The Hong Kong Securities and Futures Skilled Affiliation filed a submitting this week warning that the proposed adjustments might forestall restricted involvement in cryptocurrencies by conventional asset managers.

At subject is a proposal by the Securities and Futures Fee to get rid of the long-standing 10% “de minimis” exemption for Sort 9 licensed asset managers. Underneath the present regime, directors can allocate as much as 10% of a fund’s property to digital property with out acquiring a separate license, offered they notify the regulator. The proposed framework removes that restriction, that means any stage of cryptocurrency publicity would require a full license.

The affiliation stated the adjustments will impose increased compliance prices on firms contemplating smaller allocations relatively than crypto-focused methods. The regulator can also be proposing stricter custody guidelines and the introduction of a crypto-asset reporting framework along with the OECD that might increase oversight of firms beforehand exterior the scope of conventional securities regulation. Native legislation agency JunHe LLP described the proposal as a major change in regulators’ expectations.

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