Hong Kong Ban Non-Professional Investors From Investing In Complex Crypto products

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The Hong Kong Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) require crypto service providers to test users’ knowledge of complex investment instruments like Futures ETFs before permitting them to trade such assets.

Hong Kong regulators SFC and HKMA issued a regulation that banned trading platforms from offering cryptocurrency spot ETFs to small retail investors. A Joint circular on intermediaries’ virtual asset-related activities clarifies that regulators are concerned about protecting unqualified investors from the risks associated with investing money in cryptocurrencies.

It is stressed that qualified investors with at least 8 million Hong Kong dollars (about $1 million) in their investment portfolio will be able to invest in cryptocurrency spot ETFs. Retail investors operating with smaller amounts will not be able to invest in them at all.

An exchange wishing to trade spot ETFs will require testing the investor’s knowledge of complex investment products. Based on the test results, a decision can be made to approve or stop the user’s from trading complex instruments:

The circular says:

“VA-related products considered complex products should only be offered to professional investors. For example, an overseas VA non-derivative ETF would likely be a complex product and should only be offered to professional investors.

Except for institutional professional investors and qualified corporate professional investors, intermediaries should assess whether clients have knowledge of investing in virtual assets or VA-related products prior to effecting a transaction in VA-related products on their behalf. Suppose a client does not possess such knowledge. In that case, the intermediary may only proceed if, by doing so, it would be acting in the client’s best interests and it has provided training to the client on the nature and risks of virtual assets. Intermediaries should also ensure that their clients have sufficient net worth to be able to assume the risks and bear the potential losses of trading VA-related products.”

Hong Kong is competing with Singapore for the title of the world’s cryptocurrency hub, the HKMA promised to revise the legislation on cryptocurrencies by July. The Central Bank of Hong Kong is developing rules for regulating stablecoins as a payment instrument since such assets pose possible risks to monetary and financial stability.

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