Hong Kong’s SFC tightens oversight of the crypto asset market

Key points:

• The Hong Kong regulator (SFC) has tightened control over companies using digital asset treasury (DATs) bonds to protect retail investors
• SFC Chairman Kelvin Wong said that the shares of such companies are often overvalued, and their activities are associated with high volatility and a lack of a clear legal framework
• The regulator has also launched a campaign to raise investor awareness of the risks associated with digital assets

The Hong Kong market regulator has taken measures to restrict the use of listing companies that use digital asset treasury (DATs) bonds. It has also stepped up supervision and launched a public awareness campaign to warn retail investors about the risks.

Kelvin Wong Tin-yau, the chairman of the Hong Kong Securities and Futures Commission (SFC), said the agency is monitoring how listed companies use cryptocurrencies to manage excess cash or refocus on digital assets as their core business. He added:

“The SFC is concerned about whether DAT companies’ share prices are traded at a substantial premium above the cost of their DAT holdings.”

SFC warns investors about growing interest in cryptocurrencies

Wong Tin-yau stated that Hong Kong currently lacks a clear legal framework for cryptocurrency-based treasury securities transactions. He urged investors to be fully aware of the risks before investing in such companies. According to him, treasury bonds with digital assets are characterized by high volatility and regulatory uncertainty.

Wong added that if these companies are ever subject to formal regulation, the premium on their share prices may disappear. He also noted that raising investor awareness of cryptocurrencies is one of the SFC’s top priorities, as many retail investors are unaware of the risks associated with the DAT structure.

Hong Kong’s financial regulators are taking a firm stance on companies seeking to operate solely as cryptocurrency custodians. The Hong Kong Stock Exchange (HKEX) has objected to at least five companies planning to convert to DATs, and none of them have yet received approval for listing.

In August, the SFC established new asset storage standards for licensed crypto exchanges. The reason for the tightening was an analysis of the platforms, which revealed weaknesses in the security systems of some of them.