SFC’s statement on regulatory framework for investing in virtual assets

On 1 November 2018, the Securities and Futures Commission (SFC) published a speech, which includes the regulatory framework for virtual asset portfolio managers, fund distributors and trading platform operators.

Demand in investment in virtual assets, such as “cryptocurrency,” “crypto-asset” or “digital token,” increases in recent years. Such investments normally via unknown funds and unlicensed trading platforms have significant risks. The increasing investments draw the attention of SFC.

Although the virtual assets have several characteristics of money, including durability, divisibility, portability, limited supply and uniformity, the creditability of the virtual assets is very limited. The core value of virtual assets is acceptability of virtual assets in the illegal or unauthorized transactions. On the other hand, the increase in similar virtual assets will further weaken the “limited supply”, and then the creditability and value of the existing virtual assets. If the creditability of such virtual assets continues to deteriorate, to the extreme, they may only have the value of commemorative coins of IT technicians.

The investors of virtual assets may lack of any protection as virtual assets may fall outside the scope of SFC’s oversight under the existing regulations in Hong Kong. The speech illustrated (i) the regulatory approach of SFC for virtual asset portfolio managers and fund distributors; (ii) SFC’s intention to explore regulation to platform operators.