Hong Kong’s SFC Releases Regulations for Crypto Fund Managers

Hong Kong's securities regulator, the Securities and Futures Commission (SFC), has officially released regulations for crypto fund managers. The SFC published the regulatory circular on its website on Oct. 4.

In the 37-page document titled “Proforma Terms and Conditions for Licensed Corporations which Manage Portfolios that Invest in Virtual Assets,” the SFC provided terms and conditions for corporations managing portfolios that invest in virtual assets.

Organization and management structure

According to the document, virtual asset fund managers in Hong Kong should always maintain liquid capital of a minimum of 3 million Hong Kong dollars ($383,000) and its variable required liquid capital. 

The SFC advised managers to have sufficient human and technical resources for the proper performance of duties as well as to adopt risk management and compliance policies, as well as policies for Anti-Money Laundering and Combating the Financing of Terrorism.

Independent custodian

In order to ensure the safety of fund assets, the SFC also requires crypto fund managers to appoint a functionally independent custodian. The regulator emphasized that a virtual asset fund manager should ensure its fund assets are segregated from its own assets, as well as assets of other clients, unless fund assets are held in an omnibus client account.

If a manager receives fiat currency on behalf of the fund, one or more segregated bank accounts should be set up for holding clients’ money, the SFC stated. Bank accounts should be established and maintained with an authorized financial institution in Hong Kong or a bank in a jurisdiction agreed to by the SFC, the document notes.

Additionally, the virtual asset fund manager should evaluate the features of diverse custodial arrangement, including hardware and software infrastructure, security controls over key generation, storage, management and transaction as well as the process of handling blockchain forks, the agency stated.

As reported, Hong Kong has established itself as one of the most progressive jurisdictions for cryptocurrencies and blockchain, as the country is one of the leading countries according to the number of registered digital currency exchanges. Earlier this year, the SFC issued guidance on security token offerings, intending to bring more clarity about the legal and regulatory requirements for the market.