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Hong Kong’s crypto firms are failing to meet the SFC regulations

on Nov 6, 2019
Updated: Mar 11, 2020
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  • Diginex is the only crypto firm that has cleared Hong Kong's SFC regulations in the past year.
  • Regulations are applicable to all funds investing 10% or above of the portfolio into digital assets.
  • Multiple crypto funds are moving out of Hong Kong to sidestep SFC regulations.

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Hong Kong Securities and Futures Commission (SFC) announced the regulations for investors that are interested in the crypto market last year. Multiple firms have filed for SFC clearance in the past year with only one being successful so far.

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As per the sources, Diginex, a prominent name in the league of crypto funds in Hong Kong, is the only firm that has passed the regulatory requirements of the SFC that were published in November 2018. The regulations were also reported to have been formalized as of October 4th, 2019.

Regulations Are Applicable To All Funds Investing More Than 10% Of Its Portfolio

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The 2018 framework was applicable to all funds operating within the Hong Kong that planned on investing its portfolio’s 10% or above into digital assets. In comparison, the guidance published in October 2019 comprised of 37 pages in total. A wide range of regulations that are currently applicable to the funds that Diginex already oversees is included in the October’s guidance. For instance, requirements concerning capital reserves have remained intact while the new regulations direct who is eligible to take on the role of a custodian for digital assets.

Financial experts have reiterated on multiple occasions that the set of rules forwarded by Hong Kong’s SFC is not stricter than one would expect for an up and rising market. Diginex, nonetheless, is the only firm that has built a reputation since November 2018 as the only firm that met the SFC’s requirements while the other crypto funds are now focusing on taking their operations elsewhere in order to sidestep SFC’s regulations.

Applications For Approval Are Becoming A Marketing Stunt In Hong Kong

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Analysts have also commented that multiple firms are only using their SFC applications for marketing purposes and to spread the word rather than actually looking forward to receiving the license.

Crypto experts have also opinionated that the ongoing bearish sentiment in the crypto market may also have played a role in keeping the crypto funds from being entirely committed to meeting the SFC’s requirements.

Kenetic Capital’s partner, Jehan Chu, recently stated in an interview:

“The volatility and poor returns in 2018 scared large institutions away from allocating to crypto funds, causing those who survived to shelve their licensing plans”.

Kenetic Capital is a well-known venture capital that primarily deals in digital assets.

SFC’s officials, however, refrained from commenting on the nitty-gritty of the application process that may have contributed to extensive rejections, as well as the pending applications of the firms that are under scrutiny for now.

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