Hong Kong Issues New Rules to Regulate Cryptocurrency Funds and Exchanges

Hong Kong’s securities regulator issued a statement setting out guidelines for funds dealing with cryptocurrency Thursday, Nov. 1, saying it could move to formally regulate exchanges.

In what it called “guidance on regulatory standards,” the autonomous Chinese territory’s Securities and Futures Commission (SFC) set in motion a series of steps that chief Ashley Alder hinted would culminate in a formal regulatory environment.

Hong Kong differs significantly in its approach to cryptocurrency from mainland China, with cryptoasset exchange and related activities legal, though formal regulation is pending.

“The market for virtual assets is still very young and trading rules may not be transparent and fair,” Bloomberg quoted Alder as saying during a fintech forum Thursday:

“Outages are not uncommon as is market manipulation and abuse. And there are also, I am afraid, outright scandals and frauds.”

The latest proposals pertain to any fund managers investing more than 10 percent of their holdings in cryptocurrency, with entities serving exclusively professional traders able to join a sandbox scheme designed to give more room to develop new products and services.

For others, a licensing process will require entities to inform the SFC about their business practices.

The statement reads:

“In order to afford better protection to investors, the SFC considers that all licensed portfolio managers intending to invest in virtual assets should observe essentially the same regulatory requirements even if the portfolios (or portions of portfolios) under their management invest solely or partially in virtual assets, irrespective of whether these virtual assets amount to ‘securities’ or ‘futures contracts.’”

Cryptocurrency exchanges could also fall under the the SFC’s supervision more directly in future.

“…It is proposed that the standards of conduct regulation for virtual asset trading platform operators should be comparable to those applicable to existing licensed providers of automated trading services,” it adds.

Hong Kong’s sharpening of its regulatory oversight comes while more and more jurisdictions move to do the same, as Bitcoin and major altcoin markets stabilize and a general acceptance of their longevity begins to crystalize.

Last week, Taiwan announced it would release dedicated rules governing Initial Coin Offerings (ICOs) by June next year, having previously chosen not to regulate the sector.

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Reserve Bank of India Urges Supreme Court to Regulate Crypto

India’s central bank, the Reserve Bank of India (RBI), has urged the country’s Supreme Court to regulate cryptocurrencies, local news outlet the Financial Express reports July 21.

In April of this year, the RBI announced it will stop providing services to businesses or persons dealing with cryptocurrencies, citing high risks.

The RBI’s senior advocate Shyam Divan told a bench led by Chief Justice Dipak Misra that it is necessary to regulate Bitcoin (BTC) and other cryptocurrencies since these “particular means” will “encourage illegal transactions.”

Divan also pointed out that the issue has “immense policy dimensions,” attesting that crypto has the potential to impact global money flows.

The senior advocate explained that an interdisciplinary committee headed by secretary of economic affairs, Subhash Garg, set up in 2017 in order to develop the regulatory framework for cryptocurrencies, is examining the issue. The RBI will require three weeks to respond to multiple petitions on the regulations.

On July 19, the Supreme Court reportedly postponed the final hearing on the RBI’s ban on crypto dealings —  originally scheduled for July 20 — to September 11.

The April crypto-dealing ban received backlash from the Indian crypto community, including an online petition to reverse the ban that garnered over 44,000 signatures. In May, India’s Supreme Court decided not to grant an interim injunction against the RBI ban sought by eleven crypto-related businesses.

Also in May, India’s Supreme Court ordered that no petitions can be filed in any Indian High Court against the RBI decision to ban crypto dealings. On July 5, the RBI’s three month deadline for businesses to withdraw from crypto came to an end, meaning that the ban has fully entered into force.

On July 12, an anonymous source in the Indian government reported that authorities may plan on classifying cryptocurrencies as commodities, instead of implementing a blanket crypto ban.

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