Investors in Hong Kong must pass an exam before trading: Investor protection policy

The Securities and Futures Commission (SFC) of Hong Kong has updated its regulatory framework and introduced two investor protection measures. These include trading restrictions and a virtual asset knowledge assessment, aimed at ensuring that investors have sufficient knowledge and risk awareness when participating in cryptocurrency trading, and maximizing the reduction of potential risks they may face.

Hong Kong Updates Cryptocurrency Investor Protection Policy

As two major financial regulatory bodies in Hong Kong, the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) issued a press release on the 20th in response to numerous inquiries from intermediaries and retail investors. The former expressed interest in providing cryptocurrency trading services to the latter, who in turn showed a willingness to learn more about the content and regulations.

Given the rapid integration of virtual assets into the current financial market, the two regulatory bodies deemed it necessary to implement the following additional updated investor protection measures for transactions involving virtual asset-related investment products:

Selling Restrictions

The first restriction specifies that certain virtual asset-related investment products, such as Virtual Asset Exchange Traded Funds (VA ETFs) or Virtual Asset Exchange Traded Products (VA ETPs), which are deemed more complex and less suitable for retail investors, can only be offered to professional investors.

This measure aims to prevent general investors who are not familiar with virtual assets from participating in trades they are not knowledgeable about, as these high-risk products may exceed their risk tolerance.

Virtual Asset Knowledge Test

In addition to the aforementioned investor classification restrictions, intermediaries are required to assess the investor's understanding of virtual assets and related products before their participation in such products or transactions. Institutional professional investors and qualified corporate investors are exempt from this test.

If investors lack sufficient knowledge of virtual assets or their related products, intermediaries must provide appropriate training and education to ensure investors understand the nature of virtual assets and potential risks involved.

Furthermore, intermediaries should assess investors' sufficient net assets, financial capability, and personal circumstances to set investment limits for each retail user, ensuring that their investment in virtual assets is reasonable and that they can bear the risks and potential losses associated with virtual assets and related products.

The purpose of these two measures is to ensure that investors have adequate knowledge and risk awareness when engaging in transactions involving virtual asset products through intermediaries, thereby reducing their trading risks.

Other Hong Kong Regulatory Policies Summary

Previously reported, although major centralized exchanges use stablecoins such as USDT or USDC as trading and settlement intermediaries, the centralized companies behind them still face risks of "opaque reserves" and "price decoupling collapse."

In response, Hong Kong authorities revealed in May when disclosing the cryptocurrency regulatory framework that before stricter measures are put in place, they will first prohibit retail trading of stablecoins.

Additionally, income-generating investment products such as pledging, lending, and liquidity mining commonly seen on centralized exchanges are not permitted on licensed platforms in Hong Kong to avoid potential conflicts of interest and achieve platform neutrality.

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