New Hong Kong securities regulations target crypto fund managers

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Hong Kong has finally published the official regulations for crypto fund managers. The region’s Securities and Futures Commission published the regulations on its website, almost one year after it revealed it was seeking to regulate the industry. The regulations require crypto fund managers to put in place sufficient risk management procedures, avoid conflict of interest, apply anti-money laundering programs and more.

Hong Kong has experienced unrest for quite some time now as the residents protest the amendment of the law on extradition, which if enacted, will allow the government to detain and extradite criminal fugitives to territories such as Taiwan and China. In the midst of all this chaos, crypto trading has thrived. According to data from Coin Dance, crypto trading set a new record high last week, hitting $1.6 million. The previous record, set in January 2018 stood at $1.48 million.

The decision to regulate crypto fund managers came at an opportune time. Most of the stipulations are similar to regulations governing other asset and portfolio managers. These include risk management, with the manager being required to establish and implement adequate risk management procedures. In the case where the managers decide to invest funds in an initial offering, he must ensure that the allocation of the tokens is equitable for the fund under management.

Crypto fund managers are also required to ensure that fund orders are executed on the best available terms. Additionally, “a Virtual Asset Fund Manager should establish and implement effective policies and procedures to prohibit and prevent market misconduct.”

The regulations also dictated the organization and management structure that a fund manager must adhere to. There should be segregation of duties, with the manager ensuring that they key duties are appropriately segregated, especially those duties and functions “which when performed by the same individual may result in undetected errors or may be susceptible to abuses.”

Other stipulations include avoiding conflict of interest, putting risk management procedures in place, maintaining effective compliance, having an independent audit, implementing anti-money laundering and counter-terrorist financing checks and observing skill and diligence in third-party delegation.

With the official guidelines in place, Hong Kong is setting itself up to be a global hub for institutional crypto trading. The move comes at a time when many established financial centers have struggled to provide guidance to crypto traders, making it all the more significant.

The move could also spur the growth of crypto startups in the region, the CEO of Global Coin Research Joyce Yang believes. Speaking to Decrypt, she stated, “This ‘terms and conditions’ document seems to reinforce that the SFC is showing increasing understanding of the intricacies of cryptocurrency funds. They’re being transparent with their thoughts around this space, and setting guidelines that should facilitate more funding of startups in the region.”