Hong Kong draws lessons from FTX collapse, says regulations needed to develop virtual asset market

The head of the Hong Kong Monetary Authority says planned virtual asset regulations will address money laundering and protect investors

The government has introduced a new regulatory regime for cryptocurrencies, which currently have little oversight because they do not qualify as securities

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Advertisements for a crypto exchange show a Bitcoin symbol at a Mass Transit Railway station in Hong Kong in October 2021. Photo: Reuters

Published: 10:30pm, 30 Nov 2022Updated: 12:28am, 1 Dec 2022

Hong Kong’s de facto central bank said that the collapse of FTX has shown that sound regulations are a must for the city’s pursuit of becoming a virtual asset hub and that a planned new regulatory regime will give investors adequate protection.

Eddie Yue Wai-man, CEO of the Hong Kong Monetary Authority (HKMA), told the city’s Legislative Council (LegCo) on Wednesday that a good regulatory regime for virtual assets is the foundation for the city to explore blockchain-based financial innovations.

A new governance regime for cryptocurrencies, which have hitherto not fallen under the purview of the Securities and Futures Commission (SFC), has been introduced as an amendment to the city’s anti-money-laundering law. Once passed, the rules will address money laundering problems and protect investors’ interests, Yue said.

Yue is the latest Hong Kong official to promote the city’s regulatory approach to cryptocurrencies in wake of the sudden collapse of FTX, which was the world’s second-largest cryptocurrency exchange until going bankrupt in less than a week after a run on the exchange.

Before its fall from grace, FTX was seen as a lost opportunity for the city, as it had moved from Hong Kong, where it was founded, to the Bahamas, which had friendlier policies for cryptocurrency companies. In early November, it came to light that FTX had mishandled customer funds by loaning them to its affiliated derivatives trading platform Alameda Research. Both firms were founded by Sam Bankman-Fried, who apologised when the companies filed for bankruptcy on November 11.

After FTX’s fall sent cryptocurrency values plummeting and led to cascading problems throughout the industry, Financial Secretary Paul Chan Mo-po reiterated Hong Kong’s commitment to virtual asset regulation, which he said in a blog post is more attractive now as the industry seeks greater transparency.

On Wednesday, Joseph Chan Ho-lim, Under Secretary for Financial Services and the Treasury, also said during a LegCo council meeting that Hong Kong’s current regulatory framework for virtual assets already takes precautions against incidents similar to the meltdown of FTX.

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