In light of an increasing demand for virtual asset investment products, the Hong Kong Securities and Futures Commission (SFC) has been taking steps to clarify the legal and regulatory requirements for this market. In this regard, on October 4, 2019 the SFC issued “Proforma Terms and Conditions for Licensed Corporations which Manage Portfolios that Invest in Virtual Assets (T&Cs). The T&Cs set forth terms and conditions that are imposed on all in-scope virtual asset fund managers in the form of licensing conditions, subject to minor variations and elaborations concerning certain business models. This OnPoint provides an overview of the T&Cs.

Scope of Application -

The T&Cs apply to licensed corporations that manage funds (or portions of funds) that invest in “virtual assets”, and which have: (a) a stated investment objective to invest in virtual assets; or (b) an intention to invest 10% or more of the gross asset value of their portfolio in virtual assets (Virtual Asset Fund Managers). “Virtual assets” are digital representations of value, which may be in the form of: digital tokens (e.g., digital currencies, utility tokens or asset-backed tokens); any other virtual commodities; and crypto assets or other assets of essentially the same nature, irrespective of whether they may be deemed “securities” or “futures contracts” as defined in the Securities and Futures Ordinance (SFO).