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Hong Kong SFC Reluctant to Issue License to Crypto Funds

Though Hong Kong’s Securities and Futures Commission (SFC) introduced a license for the crypto fund managers last year, the regulator is reluctant to issue it.

According to a Reuters report on Tuesday, the SFC has issued the license only to a handful of players operating under its jurisdiction, allowing them to manage digital currencies-related funds.

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Though the exact number of regulated funds could not be revealed, due to lack of public discretion, industry experts confirmed that the barrier to gain the license is very high.

The SEC introduced the licensing in October last year to legitimize the operation of the growing crypto funds in the region.

“Last year there was a lot of excitement but since then we haven’t seen much activity,” Gaven Cheong, a partner at law firm Simmons & Simmons, told Reuters. “Not many new managers in this area have the background, experience or support to mount such an undertaking, and this has meant that many applications never even get started.”

Simmons & Simmons was the advisor to Diginex, which manages a cryptocurrency “fund of funds” and gained the license in June.

Who is to blame, regulator, or the industry?

The report also revealed that the rigorous process of the application had forced multiple fund managers to move their base from the Chinese autonomous territory to other jurisdictions. However, many believe that the struggles of being a new industry are limiting the distribution license.

“My take is it is more an operational and infrastructure issue, than the regulator being obstructive,” Rocky Mui, a partner at Clifford Chance in Hong Kong, said.

A similar licensing trend can be seen for the issuance of controversial BitLicense in New York as in the first year of introduction, only six companies were granted the license. However, to date, 22 crypto companies possess the license.

“The volatility and poor returns in 2018 scared large institutions away from allocating to crypto funds, causing those who survived to shelve their licensing plan,” Jehan Chu, a partner at Kenetic Capital, told the publication. “As institutional investors step into the market, crypto funds will dust off their licensing applications and take a fully regulated approach.”


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