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Regulation

HKEX's Report Calls for Application of Existing Regulations to Crypto Sector

Kristina Frunze | Oct. 22, 2018
HKEX's Report Calls for Application of Existing Regulations to Crypto Sector

The Hong Kong Stock Exchange (HKEX) has published a report that suggests that "financial businesses of the same nature should be subject to the same regulation."

22 October 2018 – The Hong Kong Stock Exchange (HKEX) has proposed that fintech firms need to be regulated under the existing financial regulations. The exchange reportedly also had in mind the firms that are working with cryptocurrency and Blockchain

Consistency of Regulations is Crucial

The HKEX’s Chief China Economist’s Office and Innovation Lab published a research report on the 18th of October. In this report, the authority has primarily focused on the overview of the of Blockchain technology. The lab has also reviewed some possible use cases in trading, settlement and equities markets related to this nascent technology. 

Some of the emerging technologies, such as Blockchain, could be "integrated in the areas of investment, trading, clearing, and settlement," according to the report. These regulations should be common for all the companies in the financial space, says the HKEX’s research. 

Different jurisdictions might apply different rules to the technology in some use cases. According to the authors of the report, it is necessary to apply the "consistency principle" in financial regulation. This implies that "financial businesses of the same nature should be subject to the same regulation."

The report notes:

"The principle of consistency requires that ... the issuance of digital currencies and digital funds must be governed under the existing securities regulatory framework.”

Regulations Need to be Updated According to Technological Progress

The report also states:

"The public fund-raising activities of shares issuance by issuers — which do so with merely a prospectus published on the internet but without any underwriter nor compliance with the IPO registration procedures or strict disclosure requirements — must be rectified by subjecting them to the governance by the Securities Law."

Moreover, bringing similar services under existing rules would "maintain fair competition, ensure regulatory effectiveness and prevent regulatory arbitrage," stated the report from HKEX.

The authors of the report have raised one potential issue concerning the rapidly changing nature of fintech. They stated that this nature could open up some regulatory "loopholes." As a consequence, regulations need to be "continuously updated" in order to keep pace with technological advancements. 

The report appeared on the day that the Financial Action Task Force in Japan stated that it plans to draw up rules for international cryptocurrency regulation by June 2019.

The shift would require any country that intends to stay included in the international financial system to have a licensing and regulating regime for exchanges. They would also need to regulate wallet providers and firms that are involved with initial coin offerings

Earlier this March, HKEX was reportedly discussing the possibility of learning from the Australian Securities Exchange (ASX) about its experience in shifting over to a Blockchains settlement system. 

In the beginning of the year, AtoZ Markets reported that Hong Kong launched cryptocurrency risks education platform.

Think we missed something? Let us know in the comments section below. 

Disclaimer: The views and opinions expressed in this article are solely those of the author and do not reflect the official policy or position of AtoZ Markets.com, nor should they be attributed to AtoZMarkets.