Hong Kong Expands Financial Reporting Oversight to Crypto Firms

Hong Kong’s securities regulator is broadening its cooperation with town’s accounting watchdog to cowl monetary reporting and audit work at licensed crypto companies, together with digital asset service suppliers.

The Securities and Futures Fee (SFC) and Accounting and Monetary Reporting Council (AFRC) signed a brand new memorandum of understanding (MOU) on September 28, changing a 2021 settlement and increasing their coordination past listed firms.

The framework covers monetary and compliance reporting by SFC-licensed firms, licensed digital asset service suppliers, SFC-authorized funds and registered open-ended fund firms. It additionally applies to associated audit and assurance work. The settlement supplies for data sharing, referrals, regulatory help and coordinated inspections and investigations the place the businesses have overlapping pursuits.

Crypto companies enter broader reporting framework

The inclusion of licensed digital asset service suppliers offers the SFC and AFRC a proper mechanism to coordinate on accounting and reporting points involving Hong Kong’s regulated crypto sector.

Beneath Hong Kong’s current framework, licensed companies and licensed VAS suppliers should appoint auditors and submit monetary statements and different required paperwork to the SFC. Auditors will also be required to report issues reminiscent of {qualifications} or antagonistic statements of their experiences, materials points affecting a agency’s monetary place, or failures to satisfy specified regulatory necessities.

The brand new MoU doesn’t create these underlying obligations. As an alternative, it establishes how the 2 regulators will cooperate when issues involving monetary reporting, auditing or regulatory compliance fall inside their respective mandates.

Auditors turn into a key hyperlink between regulators

The settlement offers the AFRC and SFC a course of for referring issues to at least one one other when a difficulty crosses their regulatory boundaries.

If the SFC identifies a matter which will fall inside the AFRC’s remit, together with considerations about skilled requirements, it could possibly refer the case to the accounting regulator. The AFRC can equally refer issues involving regulatory necessities relevant to licensed companies, funds and different entities to the SFC.

The businesses also can coordinate investigations and inspections in important or pressing circumstances. The place each regulators are concerned in the identical matter, the MoU requires them to coordinate enforcement exercise to restrict pointless duplication.

For crypto companies, that might carry accounting and audit considerations into nearer coordination with the SFC’s current supervision of monetary soundness and compliance.

VASPs particularly coated by investigation guidelines

The settlement units out extra notification and session necessities when the AFRC investigates issues involving licensed digital asset service suppliers.

For instance, when the AFRC begins sure investigations involving a licensed VAS supplier, it’s required to inform the SFC. The AFRC should additionally seek the advice of the SFC earlier than exercising specified investigative powers in circumstances involving a licensed VAS supplier or sure accountable individuals.

The identical framework extends to sure investigations involving auditors and financial-reporting compliance the place regulated entities are concerned.

This provides the SFC visibility into related accounting and audit investigations involving companies underneath its crypto licensing regime whereas preserving the AFRC’s statutory tasks.

Funds and different regulated entities additionally included

The expanded cooperation will not be restricted to crypto firms.

The MoU additionally covers SFC-authorized collective funding schemes and registered open-ended fund firms, together with their monetary reporting and audit preparations.

The SFC is accountable for setting authorization requirements for collective funding schemes supplied to the general public and for registering open-ended fund firms. The AFRC, in the meantime, oversees the accounting occupation, together with auditor registration, inspections and investigations.

The 2 businesses stated the expanded framework is meant to help dependable monetary reporting and audit high quality throughout a broader a part of Hong Kong’s monetary system.

Digital bond push provides to Hong Kong’s tokenization drive

The expanded reporting framework comes as Hong Kong continues to develop blockchain-based monetary infrastructure. Bloomberg reported on September 24 that the federal government was getting ready a multi-currency digital inexperienced bond of HK$15 billion and HK$20 billion ($1.9 billion to $2.6 billion), citing folks conversant in the matter. If accomplished on the higher finish, the transaction could be the biggest digital bond sale of its variety, based on the report.

The proposed bonds would be denominated in U.S. dollars, Hong Kong dollars, euros and offshore yuan, with investor conferences deliberate forward of potential pricing. The initiative provides to Hong Kong’s use of tokenized infrastructure in conventional monetary markets, alongside its regulatory growth round licensed digital asset companies.

Individually, the SFC has been tightening operational safeguards for licensed crypto platforms. In July, it directed licensed digital asset service suppliers and web brokers to undertake phishing-resistant authentication strategies, together with passkeys and certain units, and to strengthen monitoring of suspicious account exercise. 

The SFC said companies should implement the stronger authentication measures as quickly as practicable and no later than July 8, 2027, whereas giant web brokers are anticipated to implement them instantly.

Info sharing and joint investigations

The MoU establishes a broader mechanism for exchanging data related to every regulator’s statutory capabilities, topic to relevant legal guidelines and confidentiality necessities.

The businesses can notify each other about regulatory developments, present technical help and coordinate coaching. They will additionally set up job forces for coordinated investigations or inspections, with tasks and evidence-gathering procedures agreed between the regulators.

The place enforcement issues overlap, the businesses are anticipated to find out which regulator has the extra applicable powers and capabilities to steer the motion.

The settlement additionally supplies for session when one regulator’s investigative steps might have an effect on the opposite’s case.

MoU doesn’t change Hong Kong’s legal guidelines

The settlement is an announcement of intent between the SFC and AFRC and isn’t legally binding. It doesn’t amend Hong Kong legislation, switch regulatory powers between the businesses or create new obligations for regulated companies.

As an alternative, it replaces the earlier 2021 MoU and units out a extra intensive framework for cooperation throughout licensed companies, VAS suppliers, funds and associated auditors.

For Hong Kong’s regulated crypto market, the principle change is the formal inclusion of licensed digital asset service suppliers and their related monetary reporting and audit work within the two businesses’ cooperation framework.

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Disclaimer: The data researched and reported by The Crypto Instances is for informational functions solely and isn’t an alternative choice to skilled monetary recommendation. Investing in crypto property entails important danger because of market volatility. All the time Do Your Personal Analysis (DYOR) and seek the advice of with a certified Monetary Advisor earlier than making any funding selections.