Hong Kong to avoid FTX-like scenario through transparency and supervision

Published at: Nov. 13, 2022

Just days after Binance CEO Changpeng “CZ” Zhao warned about the onset of greater regulatory scrutiny amid the FTX collapse, the Financial Secretary of Hong Kong called for a stronger focus on transparency and proper supervision when dealing with virtual assets.

Financial Secretary Paul Chan highlighted the importance of being “steady and cautious” when promoting the development of the virtual asset industry in Hong Kong. A poster accompanying Chan’s post, roughly translated to:

“While actively embracing innovation, there must be a regulatory package that adapts and keeps pace with the times to properly manage risks, create prerequisites for the orderly and vigorous development of the market.”

In October, the Hong Kong government issued a policy — Policy Declaration on the Development of Virtual Assets in Hong Kong — introducing a regulatory framework and risk-based regulatory direction. In addition, the government proposed several pilot initiatives to test and enhance the technologies powering virtual assets.

According to Chinese reporter Colin Wu, Chan’s post can be seen as a manifesto to welcome cryptocurrency companies around the world. In her words,

“The Financial Secretary of Hong Kong said that because of the bankruptcy of FTX, transparency and proper supervision must be strengthened.”

Chan didn’t take offense at FTX’s collapse. Instead, he highlighted the importance of maintaining safety and properly managing risks, explaining that:

“We must not only make full use of the potential brought by innovative technologies, but also be careful to guard against fluctuations and potential risks that may be caused by them, and avoid these risks and impacts from being transmitted to the real economy.”

In addition, his advice for crypto companies was to maintain separate accounts for keeping client assets. As pointed out by Wu, Chan also recommended crypto businesses set aside actual operating expenses for at least 12 months, among other requirements.

On an end note, Chan reiterated that a stable and sustainable crypto industry would become a reality with transparent operations and proper and appropriate supervision.

FTX CEO Sam Bankman-Fried and two of his associates are currently planning to shift bases away from the U.S. to evade possible prosecution. However, the plan to flee Dubai may not be feasible due to a treaty signed between the two nations.

If the FTX members attempt to reach Dubai, the agreement between the two nations will allow authorities to detain the fugitives at the airport and send them back to the United States.