Decentralized finance (DeFi) projects may need to comply with licensing requirements and regulations, Hong Kong regulators said on Wednesday.
Cai Zhiwei, the interim head of the intermediary agency of the Hong Kong Securities and Futures Commission (SFC), said that as long as DeFi activities fall within the scope of the Securities and Futures Ordinance (SFO), it will be subject to the same legal requirements as the Securities and Futures Ordinance (SFO) Traditional financial business.
Choy made the remarks during his keynote address at the Web3 festival in Hong Kong, as the U.S. and France also recently released reports on DeFi regulation. The China Securities Regulatory Commission has previously emphasized that DeFi is an area that needs to be regulated, but has not yet expressed its position.
“Providing automated trading services is a regulated activity by the SFO,” Choy said. “If a decentralized platform allows trading in virtual assets that constitute securities or futures contracts as defined by the SFO, the platform and operator must have a Type 7 license.”
Tsai pointed out that providing collective investment schemes to the public in Hong Kong is subject to authorization requirements.
Additionally, he said DeFi poses financial stability and transparency issues due to lack of data and unregulated companies and activities, with limited transparency from regulators, and said it raises market integrity issues such as price manipulation, front-running and investment protection concerns.
The China Securities Regulatory Commission 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 will come into effect in June 2023.
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According to Coindesk