Hong Kong’s financial regulator, the Hong Kong Securities and Exchange Commission (SFC), is reportedly planning to introduce tighter regulations for business activities involving cryptoassets.

Although Hong Kong’s authorities have so far taken a fairly lenient approach towards regulating digital assets, the SFC is now looking to more carefully monitor blockchain and crypto-related projects. Specifically, the regulator wants to introduce stricter guidelines for startups planning to launch initial coin offerings (ICOs).

The SFC also plans to formulate more comprehensive regulatory guidelines for digital currency exchanges, as concerns regarding illicit activities associated with cryptos continue to increase in the Southeast Asia region.

Products & Services Can Only Be Sold To Professional Investors

One of the first new regulatory measures proposed by the SFC includes requiring investment funds that have 10% or more invested in cryptocurrencies to obtain a license. Crypto firms in Hong Kong will also be restricted to selling their products and services to professional investors.

In order to help local firms better assess the performance and legitimacy of different cryptoassets, the SFC is considering launching a voluntary scheme that would allow exchanges to test digital currencies before listing them. The SFC has described this process and approach as a type of “temporary regulatory sandbox.”

In February 2018, the SFC had issued a warning to seven digital asset exchanges after the regulator received multiple complaints from local investors. At the time, an official notice from the SFC also stated that seven local exchanges and seven ICO startups had been warned about listing or offering cryptocurrency investments schemes that were considered securities.

Mandatory ID Verification, “Cost of Regulations Will Be High”

There has been a varied response from Hong Kong’s business community regarding the SFC’s plan to introduce more stringent regulatory guidelines for cryptocurrency related companies. Notably, financial market professional Daisuke Yasaku from the Daiwa Institute of Research said that Hong Kong’s authorities are doing the right thing by requiring know-your-customer (KYC) checks for cryptocurrency transactions.

However, Yasaku also warned: 

The cost of regulations will be high.

He explained that some digital currency trading platforms, under the new regulatory policies, may be required to frequently report to the SFC and be subjected to stricter on-site inspections. Meanwhile, Timothy Loh, the manager of a Hong Kong-based law firm, remarked:

The requirements of the SFC initiative may prove too burdensome for some operators.

According to the Nikkei Asian Review, some local crypto firms might decide not to make changes to their operations to comply with the new regulatory framework, as it could potentially hurt their business.