Hong Kong Crypto Rules: 10% Threshold Debate Could Affect 500+ Funds
Hong Kong's securities industry is kicking up a fuss over proposed licence reforms that could force fund managers to get full virtual...
Quick overview
- Hong Kong's securities industry is opposing proposed licence reforms that would require fund managers to obtain full virtual asset licences for small crypto investments.
- The Hong Kong Securities & Futures Professionals Association argues that maintaining the current 10% exemption is crucial for encouraging experimentation and adoption of digital assets.
- Eliminating the carve-out could significantly increase compliance costs and deter traditional asset managers from entering the crypto market.
- Regulators aim to balance market growth with risk management, with legislative proposals not expected until 2026.
Hong Kong’s securities industry is kicking up a fuss over proposed licence reforms that could force fund managers to get full virtual asset licences, even for tiny crypto investments. The Hong Kong Securities & Futures Professionals Association is telling the regulators to keep the ‘de minimis’ carve-out in place for Type 9 discretionary portfolio managers. Just now, managers can allocate up to 10% of a fund’s total value to virtual assets without a separate licence, provided they notify the Securities & Futures Commission.
Scrapping this threshold will make compliance more expensive, scare off any experimentation, and slow adoption by traditional asset managers – just when Hong Kong is trying to grow its digital asset market.
Proposed Changes and Industry Hurdles
The consultation wants to get rid of the 10% exemption, and that would put managers who want to try out crypto in an all-or-nothing situation. HKSFPA highlighted the key worries :
- Tiny crypto investments still trigger full licence requirements.
- Compliance & operational costs will go through the roof.
- Experimentation by big institutions may come to a grinding halt.
- Theyre asking for a risk-based notification system instead of a full licence
https://www.hksfpa.org/en/detail-page/id/540/
The association reckons a clear threshold would let managers try out Bitcoin, Ethereum & other tokens without having to deal with a mountain of regulatory red tape. Industry bigwigs say that eliminating the carve-out could deter mainstream asset managers from entering the digital asset market altogether, severely limiting Hong Kong’s growth potential.
Tightening up on Licences & Market Impact
Hong Kong regulators are trying to tighten the rules as more institutions enter the crypto market. New custody rules will force licensed custodians, which might just be impractical for private equity or venture funds holding early-stage tokens. Keeping the 10% carve-out lets stock and bond managers dip their toes into crypto a bit, but scrapping it would mean they have to get a licence first, which costs a lot of money upfront.
The impact in a nutshell:
- Easier adoption with a 10% threshold
- Bigger entry costs if there is no exemption
- Helps to slowly introduce crypto into traditional finance
- Legislative proposals arent due till 2026
The regulators are hoping this will find a balance between letting the market grow and keeping a handle on risk, making it easier for institutions to get into crypto but still keeping an eye on things.
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