Enabling Innovation in Asset Management: SFC’s Approach

Key Takeaways

  1. Christina Choi, Executive Director of Investment Products at the Securities and Futures Commission (SFC), spoke at the Bloomberg Buy-Side Forum Hong Kong 2023.
  2. Choi emphasized the role of technology, particularly AI and blockchain, in transforming the asset management industry.
  3. The SFC is working on guidelines for tokenization of SFC-authorized investment products.

SFC’s Dual Role in Asset Management

Christina Choi, Executive Director of Investment Products at the Securities and Futures Commission (SFC), addressed the Bloomberg Buy-Side Forum in Hong Kong on September 26, 2023. She outlined the SFC’s dual role: protecting investors and upholding market integrity, and strengthening Hong Kong’s position as a global asset management hub. The SFC aims to balance regulation and innovation, ensuring that technology advancements like AI and blockchain can be integrated into the asset management industry without compromising market integrity.

Technology’s Impact on Asset Management

Choi highlighted the rapid advancements in technology, specifically mentioning the miniaturization of chip technology from 90 nanometres to just three nanometres in two decades. She linked these technological leaps to the potential for “tiny changes” in the asset management industry that could result in significant market development.

Tokenization of Retail Investment Products

One of the most notable points in Choi’s speech was the discussion on tokenization of SFC-authorized investment products. Tokenization refers to the use of blockchain technology to create digital tokens that represent fractional ownership in an investment product. Choi mentioned that the SFC is currently working on detailed guidelines for tokenization, particularly focusing on primary dealing at this stage due to the nascent state of Virtual Asset Trading Platforms (VATPs) in Hong Kong.

Regulation Enables Innovation

Choi stressed that while innovation is crucial, it must be balanced with robust regulation to ensure sustainable development and investor protection. She cited historical examples like the Global Financial Crisis of 2007-08 and the fallout of unregulated crypto platforms to emphasize the importance of regulation.

Closing Remarks

In her closing remarks, Choi drew an analogy between regulation and machine learning, stating that just as “machine learning without regularization” is problematic, so is “innovation without regulation.”

Disclaimer & Copyright Notice: The content of this article is for informational purposes only and is not intended as financial advice. Always consult with a professional before making any financial decisions. This material is the exclusive property of Blockchain.News. Unauthorized use, duplication, or distribution without express permission is prohibited. Proper credit and direction to the original content are required for any permitted use.


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HK SFC Details JPEX Probe; CEO Affirms Hong Kong’s Web3 Commitment

Key Takeaways

Hong Kong’s Securities and Futures Commission (SFC) has provided details on its investigation into the unlicensed virtual asset trading platform JPEX.

Over 2,000 people have reported being defrauded by JPEX, involving more than HKD 1.4 billion.

SFC CEO Leung Fung-yee emphasizes that the incident will not change Hong Kong’s direction in developing a Web3 ecosystem.

Background and Investigation Timeline

The Hong Kong Securities and Futures Commission (SFC) has shed light on its investigation into JPEX, an unlicensed virtual asset trading platform accused of fraud. The platform has received complaints from over 2,000 individuals, involving assets exceeding HKD 1.4 billion. The SFC began monitoring JPEX in early 2022, suspecting false claims on its website and advertisements. By July 2022, the platform was put on a watchlist due to its evasive responses. Formal investigations were initiated in June 2023, leading to an official warning issued on September 13, 2023.

Regulatory Stance

SFC CEO Leung Fung-yee stated that the incident underscores the importance of regulation. She emphasized that Hong Kong’s commitment to developing a Web3 ecosystem remains unchanged. “If there is no regulatory system, investors cannot identify which platforms are relatively safe and reliable,” Leung added.

Ongoing Police Investigation

When asked about the possibility of halting or collaborating with overseas financial regulators to block JPEX’s asset transfers, Christopher Wilson, Executive Director of the Regulatory Enforcement Department, said that the police are currently leading the related investigation and declined to disclose further details.

Transition Period Concerns

Regarding the 12-month transition period for virtual asset platforms to comply with new regulations, Huang Lexin, head of the SFC’s fintech group, said that the arrangement is to give platforms operating in Hong Kong reasonable time to apply for licenses and meet regulatory requirements.

Disclaimer & Copyright Notice: The content of this article is for informational purposes only and is not intended as financial advice. Always consult with a professional before making any financial decisions. This material is the exclusive property of Blockchain.News. Unauthorized use, duplication, or distribution without express permission is prohibited. Proper credit and direction to the original content are required for any permitted use.

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SEBA Hong Kong Gains Preliminary Approval for Crypto-Related Services

SEBA Hong Kong, a subsidiary of Swiss-based SEBA Bank AG, has been granted an “Approval-in-Principle” (AIP) by Hong Kong’s Securities and Futures Commission (SFC). This preliminary approval positions SEBA Hong Kong to become one of the first licensed corporations in the city to offer crypto-related investment services.

Regulatory Green Light for Crypto Services

The AIP allows SEBA Hong Kong to proceed with its license application for conducting regulated activities in the city. The scope of the license includes dealing in securities and virtual assets-related products such as OTC derivatives and structured products. Additionally, the firm is authorized to advise on securities and virtual assets and manage discretionary accounts in both traditional and digital assets.

“The AIP marks a significant leap forward in SEBA group’s mission to secure the future of the global crypto economy and, in turn, validates SEBA Hong Kong’s position in the market as a trusted and regulated partner,” said Franz Bergmueller, Group CEO of SEBA Bank.

A Strategic Move in Asia Pacific

The AIP is a crucial step in SEBA Hong Kong’s broader Asia Pacific strategy. The firm aims to offer wealth management, investment, and advisory services with the security and customer experience that accompanies a regulated institution. “This AIP signifies that all our efforts are heading in the right direction,” commented Amy Yu, CEO APAC of SEBA Hong Kong.

Aligning with Global Regulatory Standards

SEBA Bank already holds licenses from Swiss regulatory body FINMA and Abu Dhabi’s Financial Services Regulatory Authority (FSRA). The Hong Kong AIP “significantly extends our global regulatory footprint,” Bergmueller noted.

Market Implications

The move is indicative of Hong Kong’s growing role in the global crypto economy and sets a precedent for regulatory standards in the digital asset space. “We see enormous potential in Hong Kong’s journey to becoming a global crypto market leader,” said Yu.

 SFC’s Comprehensive Virtual Asset Framework

The SFC has been a pioneer among major jurisdictions in establishing a comprehensive regulatory framework for virtual assets, commonly referred to as cryptocurrencies. Under the guiding principle of “same business, same risks, same rules,” the SFC aims to regulate various virtual asset-related activities. These include the operation of virtual asset trading platforms, fund management, and advising or dealing in virtual assets. The regulatory body’s approach aims to balance investor protection, market integrity, and risk management for financial institutions.

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Hong Kong’s SFC Warns of Improper Practices by Unlicensed Virtual Asset Trading Platforms

The Hong Kong Securities and Futures Commission (SFC) has issued a warning against some unlicensed virtual asset trading platforms (VATPs) in Hong Kong, citing engagement in improper practices. The warning, released on the SFC’s official website, highlights several areas of concern and potential legal consequences.

False Claims of Licensing Applications

The SFC has observed that some unlicensed VATPs are falsely claiming to have submitted license applications to the regulatory body. Such misleading claims are considered an offense, as they may induce others to trade in virtual assets under a false sense of assurance. The SFC has stated that it will consider any misrepresentation when assessing the VATP’s fitness to be licensed.

Non-Compliance with SFC Requirements

The SFC has also noted that some VATPs are not complying with the legal and regulatory requirements under the new regime to regulate virtual asset service providers. This includes launching new services and products that may not comply with the applicable legal and regulatory requirements. Such non-compliant activities may raise concerns about the VATPs’ intention to comply with the SFC’s legal and regulatory requirements.

Transitional Arrangements

The transitional arrangements, effective before June 1, 2023, were designed to provide sufficient time for VATPs to prepare for compliance. However, the SFC has noticed that some unlicensed VATPs have set up new entities to provide virtual asset services in Hong Kong without complying with the new regime’s requirements.

Warning to Investors

The SFC has taken the opportunity to warn investors about the risks of trading virtual assets on unregulated VATPs. Investors are cautioned that they may face the risk of losing their entire investment if the VATP ceases operation, collapses, is hacked, or suffers from any misappropriation of assets.

The SFC publishes a list of licensed virtual asset trading platforms on its website to inform the public of the regulatory status of VATPs operating in Hong Kong. This list includes the names of virtual asset trading platform operators formally licensed by the SFC. Currently, only two VATPs, OSL Exchange and HashKey Exchange, are licensed by the SFC.

The SFC’s warning serves as a timely reminder to both VATPs and investors to adhere to the legal and regulatory requirements governing virtual asset trading in Hong Kong. The regulatory body continues to monitor the situation closely and has provided a list of licensed VATPs to guide investors. 

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Gemini Co-founder Tyler Winklevoss Shares Excitement about Hong Kong’s Crypto Leadership

Hong Kong is now positioning itself as a leading force in the world of cryptocurrency. During Gemini’s global tour, co-founder Tyler Winklevoss had an insightful meeting with Hong Kong’s regulatory authority for crypto, the SFC (Securities and Futures Commission). Expressing his enthusiasm, Winklevoss took to Twitter to share his thoughts on the city’s thoughtful and clear approach to crypto regulation.

Winklevoss tweeted, “Hong Kong is ready to lead in crypto. Had a great meeting w/ the SFC — HK’s regulator for crypto — during @gemini’s world tour. Very encouraged w/ their thoughtful & clear approach. Many imp industry players making HK home and a vibrant ecosystem is developing here. Exciting!”

Highlighting the collaborative nature of the crypto community, Winklevoss also mentioned an enjoyable dinner with Hong Kong’s crypto builders. The gathering was hosted by Martin, a representative from CMCC (China Mobile Communications Corporation), along with the team from CMCC Global. Winklevoss expressed his admiration for CMCC Global, acknowledging it as one of the best funds in the entire crypto industry. He further appreciated their focus on achieving returns rather than seeking excessive PR and publicity. Gemini’s Frontier Fund proudly counts itself as an investor in CMCC Global.

During his visit, Winklevoss took the opportunity to explore the vibrant streets of Kowloon, a district known for its energy and futuristic vibe. Comparing the experience to being on the frontier, he described Kowloon as edgy, gritty, and cool, reminiscent of a sci-fi movie. Winklevoss accompanied his tweet with a series of photos, featuring two snapshots from a previous visit in 2018 and a third image captured during his recent trip, showcasing the dynamic atmosphere of the city.

As Hong Kong solidifies its position as a hub for the crypto industry, the positive sentiment expressed by Tyler Winklevoss and other prominent players underscores the city’s growing significance in the global crypto ecosystem. With its progressive regulatory approach and a diverse range of industry participants, Hong Kong appears set to take on a pivotal role in shaping the future of cryptocurrency.

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Crypto.com Denies Allegations of Misleading Trading Practices, Faces Regulatory Scrutiny Over Proprietary Trading Concerns

According to insider sources cited by The Financial Times, Crypto.com, the Singapore-based cryptocurrency exchange platform, allegedly operates an in-house trading and market-making team whose primary objective is to generate profits rather than facilitate trading. 

However, executives at Crypto.com have issued a solemn declaration to external trading firms, asserting that the company does not engage in any trading activities. Furthermore, employees of the platform have been instructed to disavow any involvement in internal market-making operations.

Crypto.com promptly responded to the allegations, stating that they have not instructed their employees to provide false information to other market participants. The platform acknowledges the presence of an internal market maker, which operates on the Crypto.com trading platform. They claim that this internal market maker receives the same treatment as third-party market makers, contributing to a platform characterized by narrow spreads and efficient markets. The company emphasizes that the majority of its revenue comes from its retail trading application, where Crypto.com acts as the counterparty to customers in a broker model. To ensure risk neutrality, the Crypto.com trading team hedges these positions by trading across multiple platforms, including their own. They assert that all participants on the platform, including market makers, are treated equally, and the company does not rely on proprietary trading as a source of income.

In light of recent allegations surrounding Crypto.com’s proprietary trading practices, concerns have been raised regarding the potential misuse of user data and the impact on market liquidity. While hedged market making has been touted as a means to bolster liquidity, regulators typically view proprietary trading with suspicion, citing the exchange’s access to sensitive user trading data as a significant risk. Notably, on May 23, the Securities and Futures Commission (SFC) of Hong Kong issued regulatory requirements for virtual asset trading platform operators, imposing a complete ban on proprietary trading activities.

The SFC’s regulatory framework explicitly addresses the issue, stating, “With regard to proprietary trading, we agree that liquidity on a trading platform is important for clients. Hence, the SFC allows market-making activities to be conducted by third-party market makers. However, the current prohibition on proprietary trading is all-encompassing and effectively prohibits even the group companies of a licensed virtual asset trading platform from holding any positions in virtual assets.”

The ban on proprietary trading stems from concerns surrounding the potential conflicts of interest and abuse of user data that can arise when an exchange engages in such activities. Regulators argue that by having access to trading data, exchange owners can exploit it to their advantage, leading to unfair practices and potential market manipulation.

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HashKey PRO Moves to Expand Retail Services in Hong Kong with New License Application

HashKey PRO, a Hong Kong Securities and Futures Commission (SFC)-licensed virtual asset trading platform, has taken a major step towards broadening its services in the region. The firm announced that it has submitted an application to provide retail services in Hong Kong under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap 615). This move signifies HashKey PRO’s increased focus on regulatory compliance and its mission to establish a reliable trading platform for retail investors.

Michel Lee, the Executive President at HashKey Group, underlined the platform’s commitment to meeting retail investors’ needs and safeguarding their interests. He stated, “Our proactive application for the required license showcases our dedication to regulatory compliance, crafting a platform that is specifically tailored to the retail user experience, and meeting the rapidly evolving demands of the industry.”

As per the latest Consultation Conclusions on the Proposed Regulatory Requirements for Virtual Asset Trading Platform Operators, licensed platforms are expected to comply with specific Guidelines. These include licensing and conduct requirements. Recognizing the crucial importance of robust investor protection measures, HashKey PRO commits to conducting suitability assessments, setting up a token admission and review committee, and adhering to rigorous due diligence and admission criteria for virtual assets offered to retail users.

Colin Zhong, CEO of HashKey PRO, expressed his excitement about the growth potential of the virtual asset industry and the opportunity to expand and deepen this market in Hong Kong. He emphasized the platform’s focus on compliance and client fund safety, stating, “Our operational model is built around these principles. We are confident that our value proposition will significantly differentiate us from the competition and establish us as a trusted platform.”

The submission of the license application is a significant milestone for HashKey PRO as it sets its sights on becoming a fully licensed platform catering to retail investors in Hong Kong. The firm anticipates closely cooperating with the SFC and relevant authorities to provide retail investors with a secure, compliant, and user-centric trading experience.

HashKey PRO is a virtual asset trading platform licensed by the SFC. Operating under Hash Blockchain Limited in Hong Kong, it has been approved to operate a virtual asset trading platform under a Type 1 (Dealing in securities) license and a Type 7 (Providing automated trading services) license. It offers fiat trading pairs and on/off-ramp support and is ISO 27001 and ISO 27701 certified.

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Hong Kong SFC Chief Executive: New Guidelines for Crypto Trading Platforms Prioritize Investor Protection

The Hong Kong Securities and Futures Commission (SFC) announced that the upcoming guidelines for operators of virtual asset trading platforms will place investor protection at the forefront. Julia Leung, Chief Executive of the SFC, made these remarks on May 30 during an online seminar in the Distinguished Leaders Series hosted by the Hong Kong Institute of Finance.

Back in 2018, when the SFC first proposed regulatory measures for virtual asset trading platforms, it faced criticism from parts of the fintech sector. Critics claimed that the licensing system – requiring applicants to meet standards related to internal controls and investor protection – could drive financial technology companies to operate in other regions like Singapore. However, Julia Leung noted that the importance of these requirements became clear to the market after several overseas virtual asset platforms went bankrupt.

The guidelines for virtual asset trading platform operators in Hong Kong will take effect starting in June. Julia Leung believes these guidelines align with market expectations and that prioritizing investor protection is the right course of action. The guidelines will include measures on the prudent custody of assets, the separation of client assets, and avoiding conflicts of interest.

Julia Leung expressed her satisfaction with the SFC’s leadership in regulatory practices, saying, “We are pleased to see the SFC leading as a regulatory role model.”

The SFC’s new regulations underscore the importance of investor protection in an increasingly digital financial landscape and reflect a growing trend of financial regulators worldwide prioritizing investor safeguards in their approach to the fast-evolving cryptocurrency industry.

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Hong Kong SFC Finalizes Regulatory Framework for Virtual Asset Trading Platforms

The Securities and Futures Commission (SFC) of Hong Kong concluded a consultation period today, revealing the finalized regulatory requirements for operators of virtual asset trading platforms licensed by the SFC.

Over the consultation period, the SFC collected 152 written submissions from stakeholders including industry and professional associations, professional and consultancy firms, market participants, licensed corporations, and individuals. These respondents largely welcomed the proposed measures, although several requested clarifications. Following an assessment of the feedback, the SFC made modifications and clarifications to some of the proposed requirements.

In a notable decision, the SFC has approved the proposal to allow licensed platform operators to cater to retail investors, with the majority of respondents showing agreement. To safeguard these investors, the SFC will introduce robust measures such as suitability assessments during onboarding, rigorous token due diligence, admission criteria, improved governance, and mandatory disclosures.

“Hong Kong’s comprehensive virtual assets regulatory framework adheres to the principle of ‘same business, same risks, same rules’, with a key focus on robust investor protection and risk management,” said Ms. Julia Leung, the SFC’s Chief Executive Officer. “This will foster sustainable industry development and support innovation.”

The newly released Guidelines for Virtual Asset Trading Platform Operators will come into effect from 1 June 2023, setting out key expectations such as the secure custody of assets, segregation of client assets, avoiding conflicts of interest, and complying with cybersecurity standards and requirements.

The SFC will provide further guidance on new regulatory requirements, license application procedures, and transitional arrangements. The application forms for trading platforms will be available on 25 May 2023 and the SFC will begin accepting applications on 1 June 2023.

In response to the regulations, operators are encouraged to apply for a license if they can comply with the SFC’s standards. Those unable or unwilling to comply should arrange for an orderly closure of their operations in Hong Kong.

To protect investors, the SFC will continue working with the Investor and Financial Education Council to educate the public about the risks of trading on unregulated platforms. At the time of this announcement, the SFC has not approved any virtual asset trading platform to provide services to retail investors. Most platforms currently accessible to the public are not regulated by the SFC.

The market’s response to the new regulations has been mixed, with the Hong Kong concept token CFX(Conflux) experiencing a pullback.

Currently, Hong Kong’s SFC has licensed only two virtual asset trading platforms: OSL Exchange and HashKey Pro. With the new regulatory framework set to take effect in June, this marks a significant milestone in Hong Kong’s efforts to regulate the fast-growing virtual asset sector.

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Hong Kong Brokers Seek SFC Clearance Before Virtual Asset Trading Law

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Companies that offer financial services in Hong Kong are reportedly already undertaking the preliminary preparations necessary to offer their goods and services to individual retail investors, as reported by the regional media.

It has been asserted that brokers and fund managers in the region have made inquiries about the essential help on the licensing requirements in preparation for the new regulations.

The Anti-Money Laundering and Counter-Terrorist Financing Ordinance in Hong Kong was revised during the month of December 2022 by local legislators (AMLO). The legislature has given its approval to this change, which is in line with the existing attitude of the region regarding the broadening of opportunities for trading cryptocurrencies.

Because the amendment creates a new licensing structure for virtual asset service providers, it will now be possible for individual investors to participate in the trading of virtual assets as a direct result of the amendment. At current time, the buying and selling of digital assets is restricted to only experienced investors and traders who can demonstrate that they have at least one million dollars worth of bankable assets in their possession.

Victory Securities and Interactive Brokers were the first two brokers in Hong Kong to receive approval from the SFC to trade digital assets for the professional customers of their respective firms.

Consumers who are interested in trading Hong Kong-listed exchange-traded fund futures that are based on Bitcoin do not require a specialist license at this time in order for Hong Kong-based brokers to be able to provide services to those customers. However, businesses who want to offer trading in virtual assets will need additional authorisation from the SFC in order to do so.

The first of March of this year was supposed to mark the beginning of the implementation of the new licensing criteria.However, in order to provide businesses who provide services for virtual assets additional time to adequately prepare, the deadline has been pushed back to the 1st of June.

This comes as a direct outcome of the recent selection of Julia Leung to fill the position of chief executive officer at the SFC.She has already stated that she is in favor of tightening the stringency of the laws governing cryptocurrencies in the local area.

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