Hong Kong SCMP Editorial says cryptocurrencies need stricter regulation

While Hong Kong is currently a reasonably free environment when it comes to cryptocurrencies, recent events have required clearer laws and regulations on this investment sector from regulators.

According to a piece published by Hong Kong’s SCMP editorial, the area has taken a major hit after the failure of many of the world’s top bitcoin exchanges. The post opened by quoting the region’s finance secretary Paul Chan Mo-po:

In light of the cryptocurrency industry crisis, insiders can no longer claim that they are above regulation or that governments simply don’t “get it.” The hype turned out to be just like any other financial craze of the past.

Paul Chan Mo-po

SCMP pointed out in its article that cryptocurrency exchange Atom Asset Exchange (AAX), which is based in Hong Kong and was founded just four years ago, has stopped all withdrawals since the middle of the previous month. Its executive team has been cut off from the outside world, and the extent of the company’s losses is now unclear.

Effect of the FTX crash on the Hong Kong cryptocurrency market

After FTX collapsed amid rumblings about local laws, Hong Kong may have narrowly avoided a disaster this way. According to SCMP, however, it is not yet clear whether or not the rebound will be harmful to the hundreds of local investors who may be exposed to AAX.

Paul Chan Mo-po said virtual assets and cryptocurrencies are “unstoppable,” despite the FTX debacle.

The city is therefore keen to catch up with Singapore in terms of progress made in the financial sector.

However, Hong Kong should be aware that Lion City’s state-owned investment arm Temasek has suffered damage to its reputation after a botched bet on FTX led to a $275 million writedown, which is about one percent of its net portfolio value of $293.97 billion as of March 31, according to SCMP.

The region’s aspiration to become a hub for virtual resources shouldn’t be stifled by regulatory agencies, nor should innovations be stifled. That said, they are doing the right thing by trying to improve the regulations.

Although Chan said the government intended to embrace virtual assets, there must be clear definitions to distinguish between digitized versions of stocks, bonds, exchange-traded funds and other financial instruments that are already regulated.

As well as new blockchain-based assets such as non-fungible tokens (NFTs), Bitcoin and other digital tokens that are not yet regulated by any authority.

There needs to be appropriate regulation due to the threats they pose to the stability of the financial system, consumer protection, money laundering and the financing of terrorist organizations.

Same company, same risk, same regulation is the strategy to use, as Chan said. The cryptocurrency frenzy is turning out to be very similar to every other financial bubble that has occurred in the past, despite the fact that it was initially designed to disrupt conventional banks and escape the clutches of the authorities.

But when it comes to dealing with other people’s money, the most important things to remember are to have responsible adults oversee the situation, practice good management, and allocate funds according to the level of risk.

A new amendment to Hong Kong’s Anti-Money Laundering (AML) and Terrorist Financing System including virtual asset service providers was recently enacted by the Legislative Council.

The new law will license virtual asset service companies starting June 1, 2023 and subject cryptocurrency exchanges to the same regulations as conventional banks.

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