Hong Kong News

Nonpartisan, Noncommercial, unconstrained.
Thursday, Feb 09, 2023

Hong Kong’s main lesson from FTX’s collapse? More regulation is needed

Hong Kong’s main lesson from FTX’s collapse? More regulation is needed

The head of the Hong Kong Monetary Authority says planned virtual asset regulations will address money laundering and protect investors.

Hong Kong’s de facto central bank said that the collapse of FTX has shown that sound regulations are a must for the city’s pursuit of becoming a virtual asset hub and that a planned new regulatory regime will give investors adequate protection.

Eddie Yue Wai-man, CEO of the Hong Kong Monetary Authority (HKMA), told the city’s Legislative Council (LegCo) on Wednesday that a good regulatory regime for virtual assets is the foundation for the city to explore blockchain-based financial innovations.

A new governance regime for cryptocurrencies, which have hitherto not fallen under the purview of the Securities and Futures Commission (SFC), has been introduced as an amendment to the city’s anti-money-laundering law. Once passed, the rules will address money laundering problems and protect investors’ interests, Yue said.

Yue is the latest Hong Kong official to promote the city’s regulatory approach to cryptocurrencies in wake of the sudden collapse of FTX, which was the world’s second-largest cryptocurrency exchange until going bankrupt in less than a week after a run on the exchange.

Before its fall from grace, FTX was seen as a lost opportunity for the city, as it had moved from Hong Kong, where it was founded, to the Bahamas, which had friendlier policies for cryptocurrency companies. In early November, it came to light that FTX had mishandled customer funds by loaning them to its affiliated derivatives trading platform Alameda Research. Both firms were founded by Sam Bankman-Fried, who apologised when the companies filed for bankruptcy on November 11.

After FTX’s fall sent cryptocurrency values plummeting and led to cascading problems throughout the industry, Financial Secretary Paul Chan Mo-po reiterated Hong Kong’s commitment to virtual asset regulation, which he said in a blog post is more attractive now as the industry seeks greater transparency.

On Wednesday, Joseph Chan Ho-lim, Under Secretary for Financial Services and the Treasury, also said during a LegCo council meeting that Hong Kong’s current regulatory framework for virtual assets already takes precautions against incidents similar to the meltdown of FTX.

Eddie Yue Wai-man, chief executive of the Hong Kong Monetary Authority, delivers the opening keynote of Hong Kong FinTech Week 2022 at the Convention and Exhibition Centre in Wan Chai on October 31.

Under an existing opt-in licensing regime, Hong Kong requires applicants to operate virtual asset trading platforms to service only professional investors and hold client assets in segregated accounts. Licensed platforms must also avoid conflicts of interest, such as acting as both agents for customers and principal dealers trading their own book. Bankman-Fried’s companies were allegedly involved in this practice, as Alameda could have derivative products that made money when FTX customers lost.

However, exchanges were never required to be licensed in Hong Kong and could continue serving customers in the city with little regulatory oversight. The SFC has previously clarified that cryptocurrencies do not count as securities and cannot be regulated as such.

The new rules are intended to address this by creating a regulatory regime specific to these types of virtual assets, and licenses will be required. Platforms will also be allowed to serve retail investors.

“Operators who are able to receive [virtual asset] licenses in Hong Kong will be up to a certain standard and are of high quality,” Chan said at the LegCo meeting.

Hong Kong recently announced an aggressive investment-led strategy to steer economic development, starting with a HK$30 billion (US$3.8 billion) fund named Hong Kong Investment Corporation (HKIC) tasked with attracting global companies to set up businesses in the city. The government also embarked on a drive to restore Hong Kong’s status as a cryptocurrency hub.

Responding to a lawmaker’s question about whether the new HKIC will invest in companies related to virtual assets and Web3, Chan said that he is not able to offer details because the fund is still establishing its team and formulating its governance structure. The fund will consider any industry that will drive economic development, he said.

HKMA’s Yue also noted at the LegCo meeting that the city’s Exchange Fund, the war chest used to defend the Hong Kong dollar from attacks by short-sellers, did not invest in FTX or similar platforms.


Related Articles

Hong Kong News
Today's news from Britain - 9th February 2023
China has declined the US's request for Defense Secretary Lloyd Austin to speak with Chinese Defense Minister Wei Fenghe after the US Air Force shot down a suspected Chinese spy balloon, according to the Pentagon
The five largest oil companies in the West generated combined profits of nearly $200 billion in 2022, which has led to increased calls for governments to impose tougher windfall taxes
2 earthquakes in Turkey killed over 2,300 people
Powerful Earthquake Strikes Turkey and Syria, Killing More Than 1,300 People.
Turkish photographer Ugur Gallenkus portrays two different worlds within a single image. Brilliant work
Charlie Munger, calls for a ban on cryptocurrencies in the US, following China's lead
Hong Kong airlines taking bold action after the years of pandemic lockdown and travel restrictions, to make Hong Kong great again
EU found a way to use frozen Russian funds
First generation unopened iPhone set to fetch more than $50,000 at auction.
WARNING GRAPHIC CONTENT - US Memphis Police murdering innocent Tyre Nichols
Almost 30% of professionals say they've tried ChatGPT at work
Interpol seeks woman who ran elaborate exam cheating scam in Singapore
Chinese search giant Baidu to launch ChatGPT like AI chatbot.
What is ChatGPT?
Bill Gates is ‘very optimistic’ about the future: ‘Better to be born 20 years from now...than any time in the past’
China is opening up for foreign investors.
Tesla reported record profits and record revenues for 2022
Prince Andrew and Virginia Giuffre Photo Is Fake: Ghislaine Maxwell
Moonwalker Buzz Aldrin Gets Married On His 93rd Birthday
Federal Reserve Probes Goldman’s Consumer Business
China's first population drop in six decades
Microsoft is finalising plans to become the latest technology giant to reduce its workforce during a global economic slowdown
China's foreign ministry branch in Hong Kong urges British gov't to stop the biased and double standards Hong Kong report
China relaxes 'red lines' on property sector borrowing in policy pivot
Tesla slashes prices globally by as much as 20 percent
Japan prosecutors indict man for ex-PM Shinzo Abe murder
Vietnam removes two deputy PMs amid anti-corruption campaign
1.4 Million Copies Of Prince Harry's Memoir 'Spare' Sold On 1st Day In UK
After Failing To Pay Office Rent, Twitter May Sell User Names
FIFA president questioned by prosecutors
Britain's Sunak breaks silence and admits using private healthcare
Hype and backlash as Harry's memoir goes on sale. Unnamed royal source says prince 'kidnapped by cult of psychotherapy and Meghan'
China’s recovery could add 1% to Australia’s GDP: JPMorgan 
Saudi Arabia set to overtake India as fastest-growing major economy this year 
China vows to strengthen financial support for enterprises: official
International medical experts speak out against COVID-19 restrictions on China
2 Billion People To Travel In China's "Great Migration" Over Next 40 Days
Google and Facebook’s dominance in digital ads challenged by rapid ascent of Amazon and TikTok
Flight constraints expected to weigh on China travel rebound
Billionaire Jack Ma relinquishes control of Ant Group
FTX fraud investigators are digging deeper into Sam Bankman-Fried's inner circle – and reportedly have ex-engineer Nishad Singh in their sights
Teslas now over 40% cheaper in China than US
TikTok CEO Plans to Meet European Union Regulators
UK chaos: Hong Kong emigrants duped by false prospectus
China seeks course correction in US ties but will fight ‘all forms of hegemony’, top diplomat Wang Yi says
China will boost spending in 2023
African traders welcome end of China’s Covid travel curbs
France has banned the online sale of paracetamol until February, citing ongoing supply issues
Japan reportedly to give families 1 million yen per child to move out of Tokyo