Key takeaways

• The Hong Kong Securities and Futures Commission (SFC) has revealed that DeFi projects may be necessary for regulatory requirements.

• The SFC has said that DeFi activities are within the scope of the Securities and Futures Ordinance.

• Hong Kong’s new licensing regime for digital asset trading platforms takes effect in June 2023.

Hong Kong Regulator Notes DeFi Projects May Need Regulatory Compliance

Keith Choy, interim head of intermediaries at the Hong Kong Securities and Futures Commission (SFC), has stated that decentralised finance (DeFi) projects may need to fulfil regulatory requirements in the country. 

The SFC has specified that DeFi activities are within the scope of the Securities and Futures Ordinance and will be subject to the same regulatory requirements as traditional finance (TradFi). 

Choy mentioned this while speaking at the Web3 Festival in Hong Kong. This most recent cryptocurrency news comes after the United States and France recently published reports on DeFi regulation. 

The SFC had previously pointed out that the DeFi ecosystem is in need of regulation. Choy said;

“Providing automated trading services is a regulated activity under the SFO. If a decentralized platform allows trading in virtual assets, which constitutes securities or futures as defined under the SFO, the platform and operators are required to have a Type 7 license.”

Collective investment schemes must also be authorised

The SFC has also said that authorisation requirements are needed when companies wish to offer a collective investment scheme to the public in Hong Kong

According to Choy, DeFi presents regulatory agencies with issues, including financial stability and limited transparency, resulting from a lack of data and unregulated firms and activities. 

He also highlighted market integrity issues like price oracle manipulation, front-running transactions and investor protection concerns.

Hong Kong is one of the main crypto hubs in the world. In February, Interactive Brokers launched its crypto trading services in Hong Kong. 

Hong Kong’s new licensing regime for digital asset trading platforms is set to come into effect in June 2023.