New fund management rules in Hong Kong which allow investment in cryptocurrencies and other digital assets appear to have been ineffective, with very few fund managers receiving the approval of regulators for their proposals. The Hong Kong Securities and Futures Commission (SFC) introduced a licensing scheme in 2018, the first of its kind in the world, aimed at giving fund managers the opportunity to invest in crypto assets, as well as intermediaries permission to sell virtual assets to investors directly. However, in the year since, sources close to the industry say only a handful of fund managers have been given the go-ahead by the regulator, suggesting the regime has fallen short of expectations. Reuters reported that there was only one firm that could be publicly identified as having received approval, namely Diginex which manages a “fund of funds” product featuring crypto assets. The SFC has refused to comment on the number of approvals, and has said it will not publish licensing details relating to any of the fund managers involved. Gaven Cheong, partner with a specialty in SFC applications at law firm Simmons & Simmons, said the failure was in part around the level of expectation set by the rules. He told the news outlet, “Last year there was a lot of excitement but since then we haven’t seen much activity. Not many new managers in this area have the background, experience or support to mount such an undertaking, and this has meant that many applications never even get started.” Similarly, larger investment firms have remained cautious, especially in light of the volatility and weaker returns posted in 2018. Jehan Chu, partner at blockchain investor Kenetic Capital, said both these issues were a factor in deterring institutional investors: “The volatility and poor returns in 2018 scared large institutions away from allocating to crypto funds, causing those who survived to shelve their licensing plans.” Authorities in Hong Kong had hoped the crypto rules would encourage more fund managers to offer virtual assets, in an attempt to introduce formal regulation to the space. While there was widespread support for their intent in introducing legal certainty, it appears the form of the regulations may have put off fund managers from accessing crypto markets.