Hong Kong Approves Rules for Cryptocurrency Funds

Hong Kong Approves Rules for Cryptocurrency Funds

Hong Kong’s Securities and Futures Commission (SFC) have released a 37 page regulatory document providing terms and conditions for licensed corporations that provide management of cryptocurrency fund portfolios.

The rules apply to a category described as “virtual assets” and include any digital token of value – be it digital currency, utility tokens or security or asset-backed tokens. This also applies to “…any other virtual commodities, crypto assets or assets of essentially the same nature…” 

Such a definition is wide reaching and the SFC make clear that the regulation is irrespective whether the assets are classed as securities or futures contracts.

Funding Requirements

Seen as an extension to the regulatory framework established by the SFC in November last year, these latest conditions apply not only to specialised virtual asset funds but to any licensed portfolio manager who intends “…to invest 10% or more of the gross asset value of the portfolio in virtual assets.”

Virtual Asset Funds are, according to the SFC, to adhere to general principles of governance as well as meet specific funding requirements. Managers must always hold liquid capital of at least HK$3 million in addition to its variable required liquid capital and separate clients assets from their own under the protection of an independent custodian.

The Hong Kong SFC has previously established a reputation for actively policing initial coin offerings (ICOs) and providing formal guidance to to the security token offering (STO) market.

Although not officially related, the new regulations have been published at a time when transactions in Bitcoin, and interest in other digital assets, have reportedly spiked in Hong Kong during the recent protests.