Hong Kong brokers prepare ground to trade digital assets

Financial services companies in Hong Kong are moving quickly to establish the basis for their retail clients to be allowed to trade digital assets in the upcoming months.

Brokers and fund managers prepare for trading in virtual assets 

Last month, the Legislative Council approved an amendment to the anti-money laundering and counter-terrorist financing act. It will place virtual-asset service providers under the jurisdiction of the Securities and Futures Commission (SFC), starting June 2023.

The SFC is scheduled to release a consultation paper on how to open up trading in virtual assets to retail investors, as opposed to the current requirement that only professional investors or those with at least HK$8 million (US$1.03 million) in bankable assets be allowed to do so. The chance to reach more retail investors presents itself to local financial services companies.

With the explosion in demand for virtual assets, the amendment has given Hong Kong’s ambition of improving its regional hub position momentum. Despite reservations following the demise of the FTX cryptocurrency exchange, the city is adopting cutting-edge financial technology because it believes virtual assets will continue to play a significant role in driving economic advances.

Victory Securities and Interactive Brokers to go first

Brokers are not required to hold additional licenses to provide their clients with trading services for exchange-traded funds based on bitcoin and ether listed on the Hong Kong Stock Exchange.

However, Robert Lui, a digital asset leader at Deloitte Hong Kong, stated extra SFC permission is required for businesses that intend to offer active trading in virtual assets, such as cryptos and related futures products.

The first two brokerage companies in the city to receive SFC approval to trade virtual assets are Victory Securities and Interactive Brokers, albeit exclusively for professional clients.

Kennix Chan, Victory Securities’ executive director, stated that prohibiting small-scale investors from trading virtual assets may compel them to use unregulated platforms outside the local jurisdiction, subjecting them to great dangers.

According to Karen Man, a partner at Baker McKenzie’s Hong Kong financial services regulatory practice, the regulations must be understood by intermediaries who wish to engage in virtual asset trading. As well as reviewing their business agreements, methods, and procedures, she advised them to choose the right business partners and service providers.

Per Man, the SFC is one of the first to develop a comprehensive regulatory framework for policing virtual asset trading platforms. This framework addresses client asset custody, cybersecurity, market monitoring, and risk management.

The Hong Kong Investment Funds Association (HKIFA), the city’s fund houses trade group, has praised the virtual asset regulatory framework for expanding the available asset classes for regional mutual funds.