The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) have updated their crypto regulations in response to industry inquiries and market developments. The authorities have introduced additional measures to protect retail investors, restricting their access to what they describe as "complex products." They emphasized the ongoing uneven global regulatory landscape for virtual assets and noted that cryptocurrency platforms, some of which are unregulated or partially regulated, may pose additional risks for retail investors. Intermediaries distributing complex virtual asset products must comply with the SFC's requirements for selling complex products. Additional measures to protect investors include offering complex virtual asset products only to professional investors, assessing whether retail investors have the knowledge to invest in virtual assets, and ensuring clients have sufficient net worth to assume the risks.


Hong Kong has updated its crypto regulations to protect retail investors. The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) introduced measures to restrict retail access to what they consider "complex products." This decision comes in response to inquiries from industry players and the evolving crypto market landscape.


The regulators highlighted the uneven global regulatory landscape and the risks associated with cryptocurrency products. Due to the complex and volatile nature of virtual assets (VAs), the SFC and HKMA determined that VAs are very likely to be considered complex products. Therefore, intermediaries distributing such products must adhere to the SFC's requirements for selling complex products.


To protect investors, the regulators imposed several measures:

  • Offer Complex VA Products to Professional Investors: Complex VA products should be offered only to professional investors. This approach aims to limit retail access to products with higher risks.

  • Assess Retail Investor Knowledge: Intermediaries must assess whether retail investors possess the necessary knowledge to invest in virtual assets or VA-related products. If a client lacks such knowledge, the intermediary can proceed with the transaction only after providing adequate training on the nature and risks of virtual assets.

  • Evaluate Clients' Net Worth: Intermediaries must ensure that their clients have sufficient net worth to assume the risks and potential losses associated with trading VA-related products.


The new measures come in response to the evolving crypto market and the need to protect retail investors, especially in a global regulatory landscape that varies significantly. The changes aim to safeguard investors from the complexity and risks of virtual asset products and ensure they receive adequate training and have the financial capacity to participate in the crypto market.


Hong Kong initially sought to become a hub for crypto assets and businesses to revive its status as a global financial center. However, recent events, including the crackdown on the JPEX crypto exchange and increased regulatory scrutiny, have prompted these regulatory updates to protect investors in the crypto space.


The update is also a response to the cryptocurrency fraud probe of JPEX, which resulted in the suspension of some of its activities and arrests. In October, the SFC and Hong Kong police formed a special unit to monitor cryptocurrency exchanges to enhance regulatory oversight in the sector.


These developments reflect the increasing focus on crypto regulation to ensure the protection of investors, especially in jurisdictions looking to establish themselves as crypto-friendly hubs.


(Lubomir Tassev, Bitcoin News, 2023)