Hong Kong only one license issued to cryptocurrency fund per year

A year after the launch of an innovative licensing scheme for cryptocurrency fund managers, the Hong Kong Securities Regulator almost did not issue the corresponding licenses.

According to the report
Reuters, a new licensing procedure introduced by
The Hong Kong Securities and Futures Commission (SFC) in October 2018, did not actively issue licenses to cryptocurrency funds, and journalists managed to identify only one licensee on their own.

Although confirming the numbers is still difficult in light of the SFC’s privacy policy, which rejected Reuters’s request for comment and does not publicly announce a license, industry experts note that barriers to market participants remain high.

Diginex of Hong Kong, the operator of the cryptocurrency “fund of funds”, reportedly received approval for the license back in June. Chief Executive Officer Richard Byworth said his company believes that “it is vital to be a regulated company to build relationships with our customers as well as the industry.”

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Gaven Cheong, partner at law firm Simmons & Simmons, which advised Diginex on licensing at the SFC, told Reuters:

“Last year, the SFC decision caused a stir, but since then we have not seen much activity. Not many new managers in this area have the experience or support for holding such an event, and this means that many applications do not even reach the regulator. ”

Unnamed sources told Reuters that the stringent nature of licensing and the wider legal framework have led some Hong Kong cryptocurrency funds to go offshore.

Others take a different point of view, believing that it is not the regulation as such that is to blame, but the time required for the funds to develop the necessary systems for storage, audit and cybersecurity. Rocky Mui, a partner at Clifford Chance, a Hong Kong law firm, said:

“I believe this is an operational and infrastructural issue rather than a regulatory one.”

High volatility of cryptocurrencies and especially last year’s “cryptocurrency winter” are mentioned as factors that scare applicants. Kinetic Capital investment partner Jehan Chu claims that:

“Poor returns in 2018 scared large institutions from allocating funds to cryptocurrency funds, as a result of which those who survived postponed their licensing plans. As institutional investors enter the market, cryptocurrency funds will blow dust off their licensing applications and take a fully regulated approach. ”

Recall that last month, the Hong Kong Securities and Futures Commission (SFC) introduced
document governing the activities of cryptocurrency fund managers. The SFC has set standards and introduced requirements for funds investing in cryptocurrency companies. So, funds must have liquid capital in the amount of at least $ 380,000.

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