Hongkong is one of Asia’s sovereign credit the highest in 2018 years, 11 Sept. 1 officially announced on the virtual asset investment fund, virtual asset custody trading platform and the relevant regulatory requirements relating to “virtual asset portfolio management companies, fund distributors and trading platform operators in the regulatory framework of the statement”, in this apathetic Market environment, has injected a shot in the arm for the entire Asia Pacific market.
The media have no specific regulations on this statement and the meaning behind the detailed provisions. As the founder of a former practicing lawyers and financial InVault, hope that the most concise and comprehensive way to show Hongkong virtual assets policy (hereinafter referred to as the “new Hongkong”). The content of the policy and miscellaneous, this series of articles will be divided into four themes were described, including macroeconomic policy, investment funds, asset management and trading platform.
Hongkong New Deal regulation what?
The Hongkong New Deal regulation object only three: virtual asset portfolio management company (refers to a market of the two Crypto Fund (Crypto), fund distributors Fund raise party) and virtual assets trading platform operators (refers to all kinds of encryption currency exchange). That is to say, the project digital wallet, issuing ICO/STO, various foundations, block chain industry media and other types of service providers are not within the scope of regulation.
In particular, for the supervision of these three subjects have different regulatory attitude. For the first two types of fund management and distribution, regulation of the wording is “guidelines” issued regulatory standards; and for the trading platform of “explore the regulatory framework”. It means that, as a very mature traditional financial fund supervision rules, virtual assets as a new asset class, into the existing regulatory framework is deterministic events; but the encryption currency exchange as a new format, the regulatory authorities to hold an open attitude and to explore the market regulatory framework. Compared with Chinese, across the board supervision attitude, Hongkong regulatory level remarkable.
Not with “money” or “assets”
When Chinese, colleagues are still tangled “passes” and “money”, “digital currency” and “digital assets” text concept, new Hongkong’s attitude is very clear is also very simple, as long as it is based on the block chain network or distributed ledger records, collectively referred to as “virtual assets (Virtual Asset)”. Virtual assets including encryption, encryption currency (Cryptocurrency) (Crypto Asset), digital asset tokens (Digital Token). The government of Hongkong to digital assets as stocks, bonds, gold, and other bulk commodities as a new asset class. It also represents the regulatory level, the government of Hongkong for its direct confirmation of property assets.
Different from the attitude of Singapore MAS regulations. At the end of last year, MAS issued the “Consultation Paper on Proposed Payment Services Bill”, MAS will be the above mentioned assets identified as “virtual currency (Virtual Currency), and is regulated in the payment service bill, which means the Singapore MAS regulatory attitude is to use it as a means of payment and money to supervise. As the two Asia Pacific sovereign credit is higher, the essence of the attitude of supervision, will make the subsequent market to produce subtle differences.
To protect the interests of investors due to the lack of regulatory intervention
The new deal in Hongkong before and after the more than 20 page document, repeatedly stressed the reason is the lack of regulatory intervention to protect the interests of investors”. Even in many places has repeatedly stressed that the document, “non securities and futures contracts virtual assets does not constitute securities, Hongkong Securities Regulatory Commission theory without regulatory intervention, but ultimately from protecting the interests of investors perspective, still all securities and non securities virtual assets are incorporated into the scope of regulation.
“To protect the interests of investors is the core of the mainstream of the securities industry regulation as a starting point, the United States securities regulation the most perfect country, the protection of small investors in this thing always spare no effort. Whether strict information disclosure SEC led and huge fines, or local prosecutors of insider trading investigation, or all kinds of collective litigation lawyers of the listed company in hot pursuit, the behavior seems to be driving the interests of all parties, but eventually established through laws and rules, so that regulators and markets involved, thus to protect the interests of investors, this is the right way to open the securities supervision.
Hongkong new deal also mentioned that the Hongkong securities law to protect the two things, the first is “safe custody of assets”, i.e. the security of assets is the core factor, which runs through the whole Hongkong new context; second is to create and maintain the market fair and open “, namely the market rules established by the strict supervision. Let all the people ring fair competition at the same level, rather than the current referees and athletes competition. Only be safeguarded in the safety of assets, and the premise of fair market competition environment, large sums of money institutions have the conditions for admission. After all, recharge trading virtual assets trading platform to allow private compliance of large institutional funds into non licensed, it is very challenging.
The risk of virtual assets supervision, look very clear
Different from other asset classes, virtual assets due to the characteristics of the principle of block chain technology and cryptography, in addition to the traditional risk asset class itself, but also contains a lot of specific risk. Here, the common language the author will explain the SFC to these particular risk perceptions:
1, valuation, volatility and liquidity. Virtual assets valuation principle has practical value and there is no universally accepted, so bring a price volatility valuation is uncertain, it may be accompanied by a large number of market manipulation.
2, accounting and auditing. In view of the virtual assets are not accepted accounting standards and practices of the industry, should have experienced accountant. The place which virtual assets accounting? The market is not the answer.
3, network security and safekeeping of assets. The hacker threat is real, and qualified custodian solutions co.. In this regard, the Hongkong Securities Regulatory Commission put forward the concept of “qualified custodian” innovation.
4, honest and steady market. Here is not clean is not robust, mainly refers to the operation of the trading platform is not standardized, the operation interruption, market manipulation, illegal activities and other phenomena, thus causing losses to investors.
5, money laundering and terrorist financing risk. Anonymity of fictitious assets leads to legal tender coin all transactions and the risk of money laundering, one of the largest use of this scene is precisely the virtual assets.
6, a conflict of interest. Once again named the trading platform, referred to the existence of multiple roles, there are problems of serious conflicts of interest.
7, fraud. Exchange and portfolio management company is not responsible, even the volume of money and run away.
Regulation: general framework and specific terms and conditions of the licensee
The existing Hongkong SFC system has Standard No. 1-12 financial license system, respectively for securities trading business of various types, and the regulatory framework of virtual assets is completely based on the existing Hongkong commission system, and divided into general licensing framework and specific terms and conditions of virtual assets supervision.
Hongkong license plate 1-12
Specifically, can be understood as a virtual portfolio of assets management companies, fund distributors and virtual assets trading platform operators should first brand system to comply with existing 1-12 license, such as the fund needs to meet 1 License (Stock Exchange) or 9 license (asset management), and trading platform need to meet 1 License (stock exchange) and 7 license plate (automated trading services); then according to the applicant specific business model is different, but also meet the conditions of virtual assets supervision and specific terms.
The first interpretation is around the Hongkong new macro policy direction and supervision way to start. The new Hongkong commission to the three intuitive feeling:
First, the Commission cognition level is very high and the market has been very rich and complete, and accurate grasp of the real market situation is the precondition to put forward effective supervision scheme;
Second, try to quickly deal, occupy the commanding heights of global virtual assets supervision, direct benchmarking competitors saw the American SEC and Singapore MAS. In this wave of Internet listed in Hongkong Securities Regulatory Commission has missed because of stubborn such giants like the Alibaba, that its very hope to catch up in the new asset class;
Third, the Hongkong Securities Regulatory Commission in their efforts to develop the market mechanism as far as possible to protect the interests of small investors. As a kind of high risk assets varieties, cultivation mechanism, the first game player to optimize the market structure with market risk tolerance is a very effective strategy, you can see the full text of all around this purpose to start.
The follow-up and three specific interpretation, respectively about investment funds, asset custody and trading platform three specific business models and formats to analyze, look forward to.
InVault founder &CEO Kenneth Xu Bin XU
King & Wood Mallesons’s top firms in banking and financial law
The top financial technology company Dianrong, MagicFintech core business person in charge
Starwin Capital founding team, responsible for fund raising and investment
In 2015 to participate in the crypto currency and block chain industry
Fudan University graduate degree