- The Hong Kong Securities and Futures Professionals Association (HKSFPA) recommends the city’s crypto firms self-regulate and jointly approve any license issuances to its peers.
- The HKSFPA suggests the Securities and Futures Commission (SFC) retain the power to supervise market conduct but delegate licensing power to a self-regulatory body composed of the securities, futures, asset management, and virtual asset industries.
- Hong Kong regulators have been more tolerant of virtual asset firms compared to other parts of the world, with the SFC recently approving spot Bitcoin and Ether exchange-traded funds.
Hong Kong regulators have suggested that the city’s crypto industry set up a self-regulatory body to oversee licensing and compliance. This comes amidst Hong Kong’s efforts to remain competitive as a global financial hub while balancing robust growth and prudent oversight of the nascent crypto sector.
Hong Kong Securities and Futures Professionals Association’s Recommendation
The Hong Kong Securities and Futures Professionals Association (HKSFPA) recommended in an April 22 letter that Hong Kong crypto firms form a self-regulatory committee. This industry body would be responsible for approving licenses for crypto companies in Hong Kong.
The HKSFPA noted that Hong Kong’s financial regulator, the Securities and Futures Commission (SFC), should retain oversight powers. However, licensing should be handled by the industry itself through the self-regulatory body.
Rationale for Self-Regulation
According to the HKSFPA, self-regulation helps focus on overall industry growth and prevents excessive regulatory scrutiny. The body had suggested self-regulation in a previous August 2021 letter as well.
Hong Kong aims to balance development and supervision of the crypto sector. Self-regulation would allow the industry more autonomy while the SFC retains supervisory authority.
Concerns Around Self-Regulation
Self-regulation does come with risks if proper oversight mechanisms are not in place. Lithuania recently decided to increase supervision of its crypto sector from 2025 after compliance and fraud issues emerged. The country has so far taken a light-touch approach to regulating over 580 licensed crypto companies.
However, Hong Kong has adopted a more cautious stance than other jurisdictions so far. For instance, the SFC only recently allowed Bitcoin and Ether ETFs and has approved just two crypto exchanges for licensing.
Conclusion
Self-regulation could spur growth and innovation for Hong Kong’s crypto industry. However, the SFC would need to ensure sufficient guardrails are in place to balance industry development and investor protection. Striking the right balance will be key for Hong Kong to become a global crypto hub.
