Hong Kong wants retail investors access limited to ‘highly liquid’ products

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Hong Kong’s regulators have confirmed sweeping changes for the digital asset industry in the country, with the new rule restricting retail investors to “highly liquid assets.”

Julia Leung, the new CEO of the Securities and Futures Commission (SFC), confirmed the plan for restricting the investment class in her first media engagement on January 1. According to a report by the South China Morning Post (SCMP), there are plans to publish a consultative paper to explore the potential benefits and drawbacks of the decision in Q1 of 2022.

At a panel at the Asian Financial Forum in Hong Kong, Leung was quizzed by journalists about whether the new rules would include digital assets like BTC and non-fungible tokens (NFTs). In her response, Leung reiterated that only “highly liquid assets” will be available to retail traders.

“Some virtual assets platforms have over 2,000 products, but we do not plan to allow retail investors to trade in all of them,” said Leung. “We will set the criteria that would allow retail investors to [only] trade in major digital assets.”

The new trading restriction will take effect upon passing the new licensing regime for digital assets in June. Hong Kong’s Legislative Council gave the nod toward the amendment of the Anti-Money Laundering and Counter-Terrorist Financing Act, requiring all digital asset service providers operating in the country to obtain full licensing from the SFC.

Leung stressed that the new rules restricting retail investors are not designed to stifle growth in the digital assets industry. Instead, they are put in place as an added layer of investors’ protection.

“We aim to have a proper regulatory framework to safeguard the interest of all investors and to enhance Hong Kong as a virtual asset hub,” she said. “If there are proper regulations in place, then the likelihood of an FTX-type collapse will not happen in Hong Kong.”

The SFC move gains support

The Hong Kong arm of professional services firm Deloitte agreed with the SFC’s decision to limit the investment options of retail investors. Robert Lui, head of digital assets at the firm, argued that trading illiquid assets expose retail investors to more risks that could wipe off their limited capital.

“Ideally, the SFC may select the top 10 or 20 most liquid virtual assets for retail investors to trade,” said Lui.

Currently, institutional investors in Hong Kong with capital exceeding $1 million can legally trade virtual currencies without any limitations.

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