In February, SFC published a new set of rules for digital asset trading platforms.
Decentralized Finance projects should be subjected to licensing requirements, according to a Hong Kong regulator. Keith Choy, who is the interim head of intermediaries at Hong Kong’s Securities and Futures Commission (SFC), asserted that as long as DeFi activities feature within the scope of the Securities and Futures Ordinance (SFO), it will have to be compliant with the same regulatory requirements as a conventional financial exercise.
In an address at the Web3 Festival in Hong Kong, Choy made the following announcements after the United States and France also issued notices on Decentralized Finance mandates. According to him, the SFC has always emphasized DeFi as an industry that requires clear regulations but had not laid out its perspective with clarity.
A rather straightforward theory that explains the situation can be summarized in the statement that if digital currencies compete in decentralized exchanges, they should also apply for a license.
Offering automated trading provisions is a regulated activity under the SFO, according to Choy. If a decentralized platform enables trading in digital assets, that also comprise securities or futures as explained under the SFO, the platform, and operators are needed to have a Type 7 license.
Choy also acknowledged that presenting an integrated scheme to the audience in Hong Kong is also subject to authorization requirements. DeFi comes along with its set of problems like financial instability and limited transparency because of a lack of data with unauthorized companies and practices. Choy emphasized on the issue of market integrity like price oracle manipulation, front-running transactions, and investor protection problems.
The SFC, recently in December 2022, also published a notification cautioning investors of the risks regarding the virtual asset platforms. Hong Kong’s new licensing authority for digital asset trading platforms comes into action in June 2023.
Recently in February, SFC published a new set of rules for digital asset trading platforms. Besides initializing a licensing regime for crypto service providers, the authorities were also looking for people’s ideas and POVs on whether to allow licensed platforms to serve retail investors and for what investor protection benchmarks and systems, these services should be provided.
A report by US risk assessment recently was also able to investigate and pinpoint several major hacks and ambushes in DeFi over the past few months, like North Korea’s use of DeFi for money laundering and other associated problems. The US report claimed that the susceptibility of the space can be more complex if smart contracts are not completely written, or if they lack a procedure to deactivate or modify spontaneously in case a loophole is identified. Hence, DeFi services need to examine and fix possible exposures that abuse the open-source code. Nevertheless, the importance of DeFi is not ignored in the report, and the fact that it is necessary for underdeveloped nations is highlighted.
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