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Hong Kong Set out Rules for Crypto Asset Managers, ICOs are OK with Limitations

Hong Kong’s Securities and Futures Commission (SFC) has recently released rules and regulations for fund managers dealing with crypto assets.

The securities regulator published a 37-page document titled “Proforma Terms and Conditions for Licensed Corporations which Manage Portfolios that Invest in Virtual Assets” on October 4, providing detailed guidance for entities managing portfolios that invest in “virtual assets” which is its term for cryptocurrencies.

According to the document, virtual asset fund managers in Hong Kong should at all times maintain liquid capital at a minimum of 3 million Hong Kong dollars (roughly $380k) and its variable required liquid capital. In addition, sufficient human and technical resources and experience are required depending on the amount of assets under management.

Different from mainland China where ICOs and exchanges providing crypto trading have been banned since September 2017, the securities regulator lays out a framework for initial coin offerings (ICOs).

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In order to ensure the safety of fund assets, the SFC requires the crypto fund manager to entrust the fund assets to a custodian that is functionally independent from it and that the virtual asset fund manager should ensure its fund assets are segregated from its own assets.

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The detailed guidance seems to reinforce that the SFC is showing increasing openness and understanding towards cryptocurrency.

In October 2018, the then-chairman of Hong Kong SFC expressed that a total ban on crypto was not the right approach as it would not work in today’s internet world when trading can cross national boundaries. Since then the region has been leading the world in developing active measures to keep the fast-growing crypto sector in check.

Last November, Hong Kong’s Securities and Futures Commission (SFC) has issued guidelines for funds dealing with cryptocurrency, which regulated funds that invest more than 10 per cent of the gross asset value in crypto asset would need to be licensed by the SFC.

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