Hong Kong Takes Cue from Singapore for Cryptocurrency Regulations

Hong Kong's famous Star Ferry departing the Victoria Harbor, much the same way that some of the city's most promising cryptocurrency companies have left for greener crypto pastures.
Hong Kong’s famous Star Ferry departing the Victoria Harbor, much the same way that some of the city’s most promising cryptocurrency companies have left for greener crypto pastures.

Hong Kong, CHINA – Hong Kong has long been a haven for cryptocurrencies and cryptocurrency exchanges. For centuries it has served as a strategically important port and commercial center for its massive hinterland of China. But ever since former Chinese President Deng Xiaoping’s reforms in the 90s, Hong Kong has lost considerable ground to cities such as Shanghai, Beijing, Guangzhou and Shenzhen. In an effort to stay a significant global financial center, one of the key areas where Hong Kong has continued to allow for innovation is in cryptocurrencies, which so far China has either banned outright, or restricted the trade thereof.

According Hong’s Kong’s financial watchdog, the Securities and Futures Commission (SFC) 2017-2018 Annual Report,

“We keep a close watch on cryptocurrencies and initial coin offerings, intervening where appropriate.”

The report also shed light on instances when Hong Kong regulators had intervened in cryptocurrency activities,

“In light of significant investor interest in cryptocurrencies and the use of initial coin offerings (ICOs) to raise funds in Hong Kong, we took regulatory action against a number of cryptocurrency exchanges and ICO issuers and issued two statements alerting investors to their potential risks.”

One of those companies affected was Black Cell Technology, whose ICO was halted by the SFC in March this year on the grounds that the token offering was an unregistered security. The order by the SFC also required for the company to return investors funds. Hong Kong’s light touch regulatory approach mirrors that of its fierce rival to the south Singapore as well. Earlier this year, Singapore’s Monetary Authority of Singapore (MAS), the country’s financial watchdog had also issued warnings to its cryptocurrency exchanges not to facilitate the trade in unregistered securities and halted one ICO on grounds that the ICO was issuing unregistered securities.

A general view of the central business district illuminated with lights in Singapore. The country has positioned itself as one of the top blockchain and cryptocurrency destinations for companies, talent and funds.
A general view of the central business district illuminated with lights in Singapore. The country has positioned itself as one of the top blockchain and cryptocurrency destinations for companies, talent and funds.

The report shed light that the Hong Kong regulator had intervened when the ICOs or cryptocurrency exchanges had facilitated the trade in digital tokens that were akin to securities and thus governed by the securities laws of Hong Kong. But the Hong Kong regulator has also provided plenty of room for fintech innovation as well, allowing innovative new companies to work in what’s known as a “sandbox,”

“We also launched the SFC regulatory sandbox for qualified firms to conduct regulated activities utilising financial technologies.”

The concept of a regulatory sandbox is not new and Singapore’s MAS has for some time maintained a regulatory sandbox to allow for fintech innovation, with the assurance of oversight as well as restrained regulatory intervention. That prescience has allowed the island nation to propel itself to among the very top of league tables in terms of fintech companies as well as market capital raised through ICOs. Hong Kong and Singapore have long maintained a fierce rivalry to be the financial hub of Asia and while for a time Hong Kong had dominated, Singapore has long since left Hong Kong in its wake, overtaking Hong Kong as the world’s No. 3 financial center, behind New York and London as early as 2016. Hong Kong, which was once a British possession but was returned to China in 1997, also suffers from the risk that Beijing’s loathing of cryptocurrencies means that despite it being an autonomous region, it is never too far away from Chinese pressure to restrict activity in this sector. So while Singapore continues to attract some of the world’s largest cryptocurrency exchanges to its shores such as Huobi and Coinbene, which recently roared to the world’s number one cryptocurrency exchange by trading volume, Binance, regularly ranked the world’s number one cryptocurrency exchange has fled Hong Kong for Malta.