On 11 December 2017, the Securities and Futures Commission (SFC) published a circular to remind the industry of the regulatory obligations arising from providing financial services relating to Bitcoin futures contracts (Bitcoin Futures) and other cryptocurrency-related products and also to warn investors about the risks associated with such products.
Certain well-established U.S. futures and commodities exchanges regulated by the U.S. Commodity Futures Trading Commission which have been authorised by the SFC to provide automatic trading services in Hong Kong have launched or will soon launch Bitcoin Futures trading services and Hong Kong investors can trade Bitcoin Futures through intermediaries which are members of these U.S. exchanges.
SFC regulatory obligations
Bitcoin Futures are regarded as “futures contracts” under the Securities and Futures Ordinance (SFO), even though their underlying assets may not be regulated under the SFO. Accordingly engaging in investment activities or providing investment services in relation to Bitcoin Futures which are targeted at Hong Kong investors without SFC licence or authorisation may constitute a criminal offence under the SFO irrespective of whether the service provider is located in or outside Hong Kong.
Associated investment risks
The SFC’s circular contains stern warnings to investors of the risks of dealing with unregulated exchanges, products or intermediaries, as well as particular risks associated with Bitcoin Futures, such as the speculative nature of cryptocurrencies, price volatility, liquidity, leverage and potential for price manipulation.