Hong Kong releases regulations on virtual asset funds

On 1 November 2018, Hong Kong’s Securities and Futures Commission (SFC) issued two new circulars applicable to funds investing in virtual assets operating on SFC regulated platforms. 

The SFC is adopting new measures for virtual asset funds in an effort to protect investors who invest in a virtual asset portfolio or fund. These updates aim to bring virtual asset portfolio managers and distributors under its regulatory net.

Some of the adopted measures include:

• Fund Managers that invest more than 10 percent of their portfolio in crypto assets will need to be licensed
• Firms managing funds which solely invest in virtual assets not constituting “securities” or “futures contracts” are required to be licensed
• Only professional investors are allowed to trade virtual assets
• Licence applicants and corporations are required to inform the SFC if they are presently managing or planning to manage one or more portfolios that invest in virtual assets
• Separately, the SFC is also outlining a conceptual framework for the potential regulation of virtual asset trading platforms. In the meantime, to conduct a meaningful study of frameworks, trading platform operators, upon satisfying some requirements may opt to move into regulatory sandboxes

We will continue to update on these new measures as more information becomes available.