Hong Kong advocates for self-regulation in the cryptocurrency sector to bolster global competitiveness

23rd April 2024 – (Hong Kong) The Hong Kong Securities & Futures Professionals Association (HKSFPA) has urged local cryptocurrency firms to adopt a self-regulatory framework. This recommendation aims to enhance the city’s standing as a premier international financial hub while ensuring a balanced approach to market supervision.

The HKSFPA’s proposal, detailed in a recommendation letter dated April 22, suggests that although Hong Kong’s financial market is robustly supervised, there lacks a dedicated entity focused on the industry’s holistic development. To address this, the association has called on the city’s regulatory body, the Securities & Futures Commission (SFC), to initiate the establishment of statutory self-regulating organizations that would operate autonomously.

These bodies would be tasked with overseeing licensing within distinct sectors of the financial industry, including securities, futures, asset management, and virtual assets.

According to the HKSFPA, such a move would not strip the SFC of its oversight responsibilities but would realign them. The SFC would maintain its authority over market conduct while the proposed self-regulatory bodies would handle the licensing functions, thereby fostering a more specialized and efficient regulatory environment.

This recommendation aligns with global trends where leading financial hubs have implemented similar self-regulatory frameworks to remain competitive. The HKSFPA highlighted the need for Hong Kong to enhance its regulatory structures to stay abreast of international standards and consolidate its position as a global financial leader.

The backdrop to this recommendation is a dynamic and evolving global regulatory landscape for cryptocurrencies. For instance, Lithuania is set to tighten its crypto regulations starting in 2025 following instances of compliance breaches and financial misconduct among licensed crypto firms. In contrast, Hong Kong has shown a more accommodating stance towards virtual asset firms. This April, the SFC approved the issuance of spot Bitcoin and Ether exchange-traded funds by several asset management firms, signalling a progressive regulatory approach.

However, the proposal for self-regulation does not come without its challenges and risks. Critics argue that self-regulation might lead to a lax oversight framework, potentially exposing the market to risks similar to those observed in less regulated jurisdictions. The balance between fostering industry growth and ensuring robust market oversight remains a delicate one.

The HKSFPA’s proposal is part of a broader dialogue on how best to regulate burgeoning sectors like cryptocurrencies without stifling innovation. As Hong Kong continues to adapt its regulatory frameworks, the global financial community watches closely, recognizing that the city’s decisions could set precedents for other financial centres grappling with similar issues.