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Hong Kong Regulator Imposes New Rules for Cryptocurrency Investments

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Hong Kong financial regulator, the Securities and Futures Commission (SFC) has begun investigating new regulations for cryptocurrency investments in the Chinese region.

The former British Colony has seen growing interest in cryptocurrencies recently and despite China’s ongoing crackdown on the industry, some of the worlds largest crypto exchanges, including Binance and OKEx, continue to maintain staff there.

Speaking at the Hong Kong Fintech Week 2018, SFC chief executive Ashley Alder spoke of the commission’s plans to implement a sandbox approach to cryptocurrency regulation. This method will give the commission an idea about whether or not cryptocurrency exchanges should be regulated and whether licensing exchanges in future will be viable.

“If, and only if, we decide at the Sandbox stage that we should regulate, we would consider granting a license,” Alder said.

One of the SFC’s key regulations includes the requirement for fund managers to acquire a license if their portfolio comprises more than 10 percent crypto investments. Urszula McCormack, of Hong Kong-based law firm King and Wood Mallesons, believes the new regulations are a good sign.

“Realistically there are two possible ways forward, regulate or ban, and it’s a smart move that Hong Kong has chosen to regulate,” she said.

Hong Kong is just one of many areas that have begun investigating possible regulations for cryptocurrency exchanges. In order for the emerging market to attract any significant institutional investment, proper regulation is necessary. With instances of cryptocurrency-related crime on the rise, pressure has been put on authorities to improve protection for investors.

However, it’s important that legislation is implemented in a way that doesn’t undermine the core values of digital asset functionality or risk negatively affecting market value. One of the core issues that regulators face is defining digital assets within the existing financial framework. Assets need to conform to existing definitions of ‘securities’ or futures contracts’ in order for current regulations to be legally enforceable.

As the market grows and matures, it’s likely new definitions will be created to accommodate the emerging asset class.

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