Hong Kong’s securities watchdog, the Securities and Futures Commission (SFC), has published an updated regulatory framework for digital asset fund managers. The new guidance strengthens Hong Kong’s reputation as one of the most progressive crypto and blockchain jurisdictions in the world.
Hong Kong and Digital Assets for Fund Managers Explained
The SFC posted new guidelines on its website on October 4th, 2019.
The 37-page document is titled ‘Proforma Terms and Conditions for Licensed Corporations which Manage Portfolios that Invest in Virtual Assets’. It outlines rules, regulations, and guidance for companies which manage digital asset portfolios.
Of note, digital asset fund managers based in Hong Kong must maintain a minimum liquid capital of 3 million Hong Kong Dollars— which equates to almost $383,000— and its variable required liquid capital.
The SFC showed some concern over money laundering and terrorism funding. They asked fund managers to adhere to relevant guidelines to prevent such activities.
Another topic included the custody of digital assets. Fund managers are requested by the SFC to select independent custodians for their clients’ assets. The priority here is the safety and security of investor assets. All fund managers must manage their own digital assets separately from their own investments.
Fund managers must also perform due diligence concerning the security of different custody solutions. This can include assessing the hardware and software used, and other features such as the security controls over key generation, storage, management, transactions, and even the ability to handle a blockchain fork.
Further, each clients’ funds must be managed separately from all others.
Should a fund manager receive fiat currency from a client, those funds must be stored in their own bank account, separate from any other clients’ funds. In addition, bank accounts are advised to be from a licensed financial institution based in Hong Kong, though exceptions are possible if the SFC approves overseas accounts.
Hong Kong is a leading jurisdiction concerning its number of licensed cryptocurrency exchanges.
In March of 2019, the SFC released detailed guidance on security tokens, in an attempt to provide a clear regulatory framework for digital asset users.
What do you think about the recent guidance released by the SFC? Let us know what you think in the comments section below.
Image courtesy of Hong Kong Lawyer.