Report: Barely Any Hong Kong Crypto Funds Being Approved for Licenses

One year after launching a trailblazing licensing scheme for cryptocurrency fund managers, Hong Kong's securities regulator has issued few and far between.

According to a Reuters report on Nov. 6, the licenses introduced by Hong Kong's Securities and Futures Commission in October 2018 have apparently led to few approvals, with reporters succeeding to independently identify just one licensee.

Hong Kong-based Diginex, operator of a cryptocurrency "Fund of funds" is reported to have won approval for a license back in June, with CEO Richard Byworth stating the firm believes it "Vital to be regulated to build trust with our clients but also in the industry."

Unnamed sources told Reuters the stringent nature of the licensing and broader regulatory framework had pushed some Hong Kong crypto funds offshore.

Regulator not obstructive, industry sources consider.

Others have a different perspective, believing it is not the regulation per se but rather the time needed for funds to develop the required systems for custody, audit and cybersecurity.

"My take is it is more an operational and infrastructure issue, than the regulator being obstructive."

"Poor returns in 2018 scared large institutions away from allocating to crypto funds, causing those who survived to shelve their licensing plans. As institutional investors step into the market, crypto funds will dust off their licensing applications and take a fully regulated approach."

As reported, the SFC launched its fund licensing scheme together with guidance on regulatory standards back in October 2018, yet did not formalize a statutory framework at the time.

A formalized document was published this October, which includes a requirement for fund managers to maintain liquid capital of a minimum of 3 million HK dollars - and its variable required liquid capital - as well as to appoint a functionally independent custodian.