As the intersection between traditional finance (TradFi) and the virtual asset (VA) space continues to narrow, Hong Kong’s Securities and Futures Commission (SFC) recently launched a new phase in VA regulation.
According to the SFC, the rapid maturation of virtual assets demands a forward-looking regulatory lens. As such, the ‘ASPIRe’ roadmap, an abbreviation of access, safeguards, products, infrastructure and relationships, includes 12 initiatives designed to streamline market access, adaptive compliance and product frameworks, and infrastructure upgrades to bridge TradFi reliability with blockchain efficiency.
With a track record of regulating VA activities dating back to 2018, based on the ‘same business, same risks, same rules’ principle, the SFC has been a pioneer in developing a VA framework for regulating investor protection concerns. These include payments, safe custody of assets, cybersecurity standards, and accounting and auditing management requirements.
While VA policies and regulations differ globally to align with the needs of each jurisdiction, experts with knowledge of the VA sector say that regulations are often fragmented, which creates ambiguities for market participants.
The SFC believes it is necessary to enhance diversity in service offerings and investor choice
Hong Kong has generally taken a cautious but consistent approach to the development of VA regulations.
In 2023, the SFC licensing regime for VA service providers was one of the first to not only comply with international requirements regarding anti-money laundering and combating the financing of terrorism (AML/CTF), as stipulated by the Financial Action Task Force, but also provide full regulatory requirements on investor protection, which has been recognised by the International Monetary Fund.
Enhancing diversity
To promote VA development, the SFC believes it is necessary to enhance diversity in service offerings, investor choice and market competitiveness by including non-VA trading platforms (VATPs) in the VA ecosystem – entities such as over-the-counter (OTC) dealers and custodians.
Under Initiative 1 of the ASPIRe roadmap, licensing regimes for OTC trading and custody services are set to be established in Hong Kong. Another initiative, which the SFC claims reflects the core principle of embracing innovation without compromising investor protection, sets out the regulation framework for placing a cap on the proportion of VA spot exchange traded funds that can be staked to manage liquidity risk.
Limited awareness can lead to uninformed decision-making and potential financial losses
As the popularity of financial content available on social media platforms gains momentum – especially with young and often inexperienced investors – the SFC has identified an emerging area that requires regulatory attention: how financial influencers or ‘finfluencers’ play a role in shaping how financial information is disseminated and consumed online.
To address the topic, the ASPIRe roadmap states that best practice guidance in responsible communication and engagement to promote responsible behaviour and accountability will be formulated. The SFC also plans to build relationships to empower investors through education, engagement and transparency.
The SFC points out that limited awareness can lead to uninformed decision-making and potential financial losses, as retail investors frequently refer to unreliable online channels for building financial literacy.
Social media
That said, a MoneySmart HK study reveals that 42% of respondents report that social media helped them expand their financial knowledge, with 17% checking social media daily for financial advice and tips.
The study also found that 40% of respondents follow specific financial influencers on social media for advice and guidance, reporting that influencers help them to make more informed financial decisions.
When it comes to financial advice, 39% of respondents reported they trust influencers more than traditional financial institutions, which may require the SFC to cultivate new ways to engage with this target audience.
