Hong Kong Regulator Gives Greenlight to Wider Retail Virtual Asset Investments With Applicable Safeguards

Hong Kong’s financial regulators The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) have released new guidelines on how intermediaries are to conduct virtual asset-related activities in light of new market developments.

In a recent circular to guide market participants, the regulators highlighted the discrepancy in the distribution of digital asset-related products, provision of asset dealing services, guidance to asset management services, advisory services, etc.

The SFC and HKMA have reversed their position slightly to allow a wider range of clients to get access to virtual asset products rather than “professional investors only.”

“The policy is updated in light of the latest market developments and inquiries from the industry seeking to further expand retail access through intermediaries and to allow investors to directly deposit and withdraw virtual assets to/from intermediaries with appropriate safeguards.” 

This new announcement comes following updates in the market and concerns by local regulators after the JPEX incident. 

Hong Kong’s Commissioner of Customs and Excise, Louise Ho Pui-shan, called for scrutiny in the market following the JPEX saga, and with institutional investors prepping for the rollout of spot ETFs, local investors needed a policy change.

Investor protection measures

In addition to the general complex product regime issue around virtual asset-related products, some restrictions still apply to intermediaries offering to retain investors.

Firstly, except for certain products like virtual asset futures contracts and other regulated markets, other VA-related products should only be offered to professional investors. 

Also, intermediaries seeking to offer services to retail clients must assess whether their clients have sufficient knowledge for investing in certain products or having such trades on their behalf.

If the answer is negative, such institutions can only proceed if they have given adequate training on the nature of cryptocurrencies and affiliated products to the client. 

Professional investors are exempted from these requirements. 

Solicitation and due diligence 

In addition to the aforementioned requirements, the circular mandates intermediaries to observe all selling restrictions within the jurisdiction and to desist from offering unapproved products.

In terms of solicitations and recommendations, the duty falls on the company to ensure the suitability of the products which is to be done in the client’s best interests taking into account certain issues like financial status and risk tolerance.

Furthermore, intermediaries must ensure that all parties properly understand key details of the agreements, and except for institutional clients, risk disclosures must be published.

“provide information and warning statements to clients in relation to VA-related products and information on the underlying virtual asset investments in a clear and easily comprehensible manner; and provide to clients risk disclosure statements (which can be a one-off disclosure)…”