According to the interim head of intermediaries at Hong Kong’s Securities and Futures Commission (SFC), Keith Choy, decentralized finance (DeFi) projects could be subject to regulation and licensing requirements.
Choy stated that if DeFi activity falls within the scope of the Securities and Futures Ordinance (SFO), it will be subject to the same regulatory requirements as traditional financial activity. He made these comments during a speech at the Web3 Festival in Hong Kong, where he also highlighted issues of financial stability, limited transparency, market integrity, and investor protection concerns that DeFi presents to regulators.
Choy noted that providing automated trading services is a regulated activity under the SFO, and if a decentralized platform allows trading in virtual assets that constitute securities or futures as defined under the SFO, the platform and operators are required to have a Type 7 license. He also stated that offering a collective investment scheme to the public in Hong Kong is subject to authorization requirements. The SFC had previously highlighted DeFi as an area in need of regulation but had not laid out its stance until Choy’s speech.
The SFC issued a statement in December 2022 warning investors of the risks associated with virtual asset platforms. Hong Kong’s new licensing regime for virtual asset trading platforms takes effect in June 2023, though there is a grandfathering period. The U.S. and France have also published reports on DeFi regulation recently, indicating a growing focus on regulating the sector worldwid.
