Hong Kong securities regulator to add virtual asset personnel to boost crypto supervision

The Securities and Futures Commission said at Legco that it is adding four new people to ‘better supervise’ virtual asset service providers
The agency has slowed hiring from last year, but the positions reflect the city’s commitment to becoming a crypto hub after recent market tumult

Blockchain

Xinmei Shen

Published: 7:00pm, 6 Feb 2023

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The Hong Kong Securities and Futures Commission (SFC) is hiring four additional people this year to “better supervise” virtual asset (VA) service providers and their activities, as the market regulator readies a new licensing regime to allow for greater retail crypto investment amid the city’s push to revive its status as a hub for such assets.

The additional manpower will be added to the agency’s Intermediaries division to help it “better assess the compliance and risk” of allowing retail investors to trade virtual assets on licensed platforms, the SFC wrote in its 2023-24 budget report submitted to the Legislative Council on Monday. A previous regime only allowed licensed trading platforms to serve professional investors, or those with portfolios of at least HK$8 million (US$1 million), although getting the license was optional.

“This is in response to an increasing number of operators who have expressed interest in carrying on VA activities such as trading platforms and the management of VA funds,” the commission wrote.

“Recruiting is our focus, especially because much of our work going forward requires a lot of specific expertise,” SFC chairman Tim Lui said on Monday at a financial affairs meeting at Legco.

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The SFC hopes that Hong Kong’s relaxation of Covid-19 control measures and the reopened borders with the mainland will help the agency retain talent, Lui said, adding that it is open to hiring professionals from both the mainland and overseas if needed.

Hong Kong first announced its plans to revive the virtual asset industry, including the new licensing regime, at the end of last October after the city had lost some of its shine to cryptocurrency companies and investors over what they perceived as regulations that were too stringent.

The new licensing regime was approved in December as an amendment to the Anti-Money Laundering and Counter-Terrorist Financing Bill. It takes effect on June 1, this time requiring licensing for crypto platforms but allowing for retail participation. The SFC will soon launch a consultation on how to allow retail investors to access virtual assets.

The new rules will adopt similar principles as Hong Kong’s existing Securities and Futures Ordinance, the newly appointed SFC CEO Julia Leung said at the Legco meeting. One priority, she said, will be the protection of customer funds, including requiring service providers to effectively segregate client money.

“We saw some overseas platforms such as FTX lending customer assets to affiliated institutions without notifying the customers,” Leung said, referring to the cryptocurrency exchange that was founded in Hong Kong but later moved to the Bahamas before it went bankrupt and fraud charges were brought against the founder and executives. “Platforms that have acquired our license cannot conduct such lending activities.”

Securities and Futures Commission (SFC) Chief Executive Julia Leung Fung-yee at a panel discussion at the 2023 Asian Financial Forum at HKCEC in Wan Chai on January 11. Photo: SCMP / Jonathan Wong

The four new recruits represent a slight 0.4 per cent bump in headcount for the SFC, bringing it to 1,022 workers. It is also a slowdown from last year, when the commission said it was adding 30 new people for the financial year amid a staffing shortage.

But all new proposed hires are meant to work on virtual assets, showing commitment to Hong Kong’s pledge to revive the industry even in the wake of contagion following FTX’s collapse that led to plummeting asset prices and financial crisis for related companies.

Prolonged Covid-19 restrictions in Hong Kong also contributed to a talent exodus. Lui acknowledged on Monday that hiring remains difficult, but it plans to ramp up efforts as the city gradually returns to normal.

The SFC lost 18 per cent of its junior staff in 2022, improved from the 25 per cent lost in 2021, according to Lui. Overall staff losses also improved slightly to 11.5 per cent from 12 per cent last year.

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