The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) have jointly issued a circular addressing the surge in queries from intermediaries seeking to distribute virtual asset-related products (VA-related products) and provide virtual asset dealing services. The circular introduces enhanced measures to cope with the evolving landscape of virtual assets and facilitate expanded retail access.
Initially implementing a “professional investors only” restriction in 2018, the SFC has revisited its approach, acknowledging the rapid mainstream integration of virtual assets. With a growing array of investment products providing exposure to virtual assets, the SFC has permitted SFC-licensed virtual asset trading platforms to serve retail investors and authorized virtual asset futures exchange-traded funds for public offering in Hong Kong.
The revised circular, superseding the January 28, 2022 edition, now imposes additional investor protection measures on the distribution of VA-related products. Notably, virtual asset-related complex products are restricted to professional investors, with intermediaries required to conduct a “virtual asset-knowledge test” for clients unless they fall under the category of institutional professional investors or qualified corporate professional investors.
Given the global regulatory diversity surrounding virtual assets, the SFC and HKMA emphasize the necessity of comprehensive safeguards. Aiming to address counterparty risks associated with unregulated or lightly regulated service providers, the circular outlines guidelines for selling restrictions, virtual asset-knowledge tests, and risk disclosures.
For the provision of virtual asset dealing services, the circular emphasizes partnering with SFC-licensed platforms, ensuring client asset protection and compliance with regulatory requirements. Intermediaries must adhere to strict controls, conduct client assessments, and establish limits to safeguard retail clients.
The circular extends its coverage to virtual asset portfolio managers, advisory services, and discretionary account management, setting stringent conditions and conduct requirements for intermediaries in these areas.
Intermediaries currently engaged in VA dealing services have a three-month transition period to align their systems with the updated requirements. Those planning to enter the virtual asset space are urged to ensure compliance before offering services to non-qualified corporate professional investors, individual professional investors, or retail investors.
