Licensing Landscape: One Year Later
A year has passed since Hong Kong rolled out its ambitious licensing scheme for cryptocurrency fund managers, but the results are, well, underwhelming. Despite the initial buzz, reports suggest that only a select few licenses have been granted. In fact, if you’re someone who loves a good scavenger hunt, you might find it easier to locate a unicorn than a newly licensed crypto fund manager in Hong Kong.
The Lone Licensee: Spotlight on Diginex
So who is the lucky winner in this game of chance? Meet Diginex, a cryptocurrency “fund of funds” that snagged approval back in June. Their CEO, Richard Byworth, declared it was essential to be regulated, stating, “Trust is everything, and regulation is the golden ticket for that pricing strategy.” Turns out, even in the crypto world, chasing after trust looks a lot like following the rules.
The Expertise Gap
The excitement that initially surrounded the crypto licensing scheme has since dimmed, with industry experts identifying a glaring issue: experience. Gaven Cheong, a partner at Simmons & Simmons who advised Diginex on their application, lamented that many potential fund managers lack the necessary background and are about as ready to tackle the licensing process as a cat is to swim. As he put it, “Many applications never even get off the ground.””>
High Standards or High Barriers?
While some believe that regulatory standards are excessively stringent, others argue that the sluggish approval process is more about fund managers’ readiness than the regulator’s intentions. According to Rocky Mui from Clifford Chance, it boils down to operational and infrastructure capabilities. Think of it like trying to bake a cake without the right ingredients; no matter how strict your grandma is about the recipe, it won’t come together if you’re out of flour.
February Freeze to Crypto Comeback?
The notorious “crypto winter” of 2018 certainly didn’t help. High volatility and poor returns left many institutional investors colder than a popsicle in January, causing many to pack their bags and head for sunnier markets. However, industry insiders like Jehan Chu of Kinetic Capital predict that as institutional money wades back into the fray, the dusty licenses will see the light of day once more. “Once the bigger players step in, we’re going to see a flood of applications that were previously shelved,” he assures.
A Shifting Regulatory Framework
In a sign of progress, October saw the SFC finally publish a formalized regulatory document for fund managers. Among the new rules, fund managers must maintain a minimum liquid capital of 3 million HK dollars (around $383,000). On top of that, they need to have an independent custodian watching over their funds, like a hawk—or maybe just a really vigilant babysitter.
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