SFC and HKMA Update Virtual Asset Policy to Protect Investors

SFC and HKMA Update Virtual Asset Policy to Protect Investors

by October 24, 2023

The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) have updated their policy on virtual asset-related products (VA-related products) for intermediaries.

These measures encompass selling restrictions where complex VA-related products will be restricted to professional investors, with only a limited subset exempt from this requirement. Intermediaries will be required to assess their clients’ understanding of virtual assets and VA-related products before conducting transactions.

In cases where clients lack sufficient knowledge, intermediaries can proceed only if they provide comprehensive training on virtual asset nature and risks. Additionally, intermediaries must ensure that their clients possess the financial capacity to assume the associated risks and potential losses.

The SFC and HKMA’s decision to implement these measures stems from concerns regarding the inconsistent global regulation of virtual assets, particularly on overseas trading platforms. To address this, intermediaries providing virtual asset dealing services must partner exclusively with SFC-licensed virtual asset trading platforms. These rules aim to protect investors from potential fraud and hacking.

Meanwhile, intermediaries providing virtual asset asset management services are subject to additional requirements, including a limit of 10% investment in virtual assets for discretionary account management services.

Additionally, provision of advisory services related to virtual assets now falls under stricter regulatory oversight. Intermediaries offering these services must adhere to regulatory requirements, ensuring suitability and liquidity of recommended assets. Intermediaries should take all reasonable steps to ensure that virtual assets recommended to retail clients are of high liquidity, as measured by inclusion in a minimum of two acceptable indices issued by at least two different index providers. The virtual asset recommended should be by SFC-licensed platforms.

Intermediaries already providing virtual asset dealing services have a three-month transition period to align their systems with the new requirements. Those planning to offer such services or extend them to retail investors must ensure compliance before implementation.