High Leverage Crypto Futures Products Unlikely to Receive Go Ahead from Hong Kong Regulator


The Securities and Futures Commission (SFC) of Hong Kong has just issued a warning about high leverage crypto futures contracts. The regulator considers such products to be too high risk for the average investor and, as such, says it is unlikely to ever licence a business offering them.

The news follows piecemeal new regulatory measures detailed by the CEO of the SFC, Ashley Alder. Crypto asset exchanges offering at least one product deemed a futures contract or an asset considered a security will now be forced to apply to the regulator’s approval.

SFC Warns Hong Kong Investors Against Unregulated Crypto Futures Contracts

The SFC published its warning against high leverage futures contracts to its website earlier today. It followed a speech given by the regulator’s CEO Ashley Alder about digital assets at Hong Kong FinTech Week 2019.

The warning states that futures contracts on virtual assets are to be considered as even higher risk than the underlying cryptocurrencies. The regulator has previously warned investors of the high risk nature of the digital asset market on several occasions.

The document places special emphasis on high leverage futures contracts:

“Investors are exposed to amplified risks due to the highly leveraged nature of virtual asset futures contracts.”

The regulator adds that the average investor is likely poorly equipped to truly understand these products.

Adding to the risk posed by the very nature of the products and their underlying assets is the fact that exchange platforms offering such products are often entirely unregulated. This leaves them susceptible to market manipulation and even dubious practices from those operating the venues themselves. The warning cites exchanges halting trades or changing the rules to contracts during their lifespan, amongst other dangers.

The document reminds investors that virtual asset trading platforms may be operating illegally in Hong Kong. If crypto  futures contracts meet the SFC’s definition of a futures contract, they must be licensed.

The regulator writes:

“The SFC has not licensed or authorised any person in Hong Kong to offer or trade virtual asset futures contracts. Given the current risks associated with these contracts and in order to protect the investing public, the SFC would be unlikely to grant a licence or authorisation to carry on a business in such contracts.”

The new warning coincides with new regulatory proposals for cryptocurrency trading venues operating in Hong Kong. Those virtual currency exchanges offering either futures contracts or tokens it deems securities must now obtain a licence.

The new scheme comes after consultation with various exchange operators and the SFC. It is designed to allow exchanges to “opt-out” of regulation if they do not offer trading in securities. Also during the speech, CEO of the SFC Ashley Alder said that the regulator did not consider Bitcoin and other cryptocurrencies as securities. This means many digital asset trading platforms will continue to operate outside of the regulator’s jurisdiction.

However, Alder did say that there was an urgent need for a united effort to regulate crypto assets. This would involve cooperation between agencies at both the national and international level.


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