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Crypto Regulations Tighten in Hong Kong and Canada Following FTX Demise

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In Brief

  • Hong Kong and Canada warn investors of fresh risks associated with crypto providers.
  • The latest circulars look to plug some of the loopholes that were exploited by FTX.
  • More countries are expected to expand oversight of platforms functioning in the sector.
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In two separate statements this week, the finance watchdogs of Hong Kong and Canada warned investors of risks associated with crypto providers. Both are beginning to introduce and expand crypto regulations to fight back.

The Hong Kong Securities and Futures Commission (SFC) warned investors about the dangers of virtual asset (VA) platforms that provide ‘deposits, savings, earnings, or staking’ services.

Meanwhile, the Canadian Securities Administrators (CSA) has expanded its rules of crypto oversight.

Hong Kong Recognizes Investor Risks of Unregulated Platforms

In light of the FTX collapse, the SFC warned that investors might incur a significant or even a complete loss of funds, particularly in the event of fraud or the demise of a VA platform.

The agency has especially circled platforms that guarantee fixed or high-interest rates on deposits. The regulator highlighted that crypto deposits are unregulated and differ from protected bank deposits.

SFC underlined, “VA are exposed to heightened risks including insufficient liquidity, high price volatility, opaque pricing, potential market manipulation, hacking and fraud and may lose all value.”

It is further added that the SFC has not examined its offer or marketing materials leaving investors unprotected. That said, Financial Secretary Paul Chan Mo-po was recently quoted saying that crypto is “unstoppable.” This could mean the region will tighten rules without stifling the sector’s growth.

Canada Goes Strict on Crypto Regulation and Custody Rules

At the same time, the Canadian Securities Administrators (CSA) said it is increasing crypto oversight. The demise of FTX has also pushed the Canadian regulator to enlarge the standards that apply to domestic platforms. This includes foreign platforms accessible to Canadians.

The expanded rules include holding Canadian clients’ assets with the proper custodian and their segregation from the platform’s primary business. There will also be a ban on providing leverage or margin to any Canadian clients.

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CSA specified that custodians subject to the supervision of a financial regulator in Canada, the United States, or a comparable country would be considered qualified.

Interestingly, CSA believes that stablecoins, or stablecoin arrangements, may qualify as securities and/or derivatives. Therefore, the agency has reminded crypto trading platforms that it is against the law to allow Canadian clients to trade or receive exposure to such assets.

That said, the CSA has stated that it will release further information regarding its expanded rules.

FTX Collapse Forces New Rules

The FTX bankruptcy has highlighted how heavily platforms rely on their native tokens. There are also claims that former CEO Sam Bankman-Fried effectively violated the law while he channeled customer funds for his businesses.

Therefore, rules ensuring the segregation of primary business funds from customer deposits is the need of the hour. This could lead to more countries expanding their oversight of platforms.

The latest circulars from Hong Kong and Canada look to plug in some loopholes that FTX exploited.

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Shraddha Sharma
Shraddha is an India-based journalist who worked in business and financial news before diving into the crypto space. As an investment enthusiast, she has also has a keen interest in understanding crypto from a personal finance standpoint.