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Hong Kong breaks the ice! A detailed explanation of the global regulatory situation

Time : 24/06/2021 Author : b4xtmc Click : + -
        Recently, OK blockchain Engineering Institute held a "seminar on global regulation and related hot issues in the blockchain industry". During the meeting, experts and professors summarized four regulatory trends and shared global regulatory experience based on the analysis of the regulatory situation in the United States, Singapore and other countries. In response to the new cryptocurrency regulations announced in Hong Kong and introducing them into the sandbox supervision plan, some experts said frankly: This is an attempt to reasonably incorporate them into the supervision, and it is a positive attitude, which will provide some reference and reference for Chinese Mainland on how to effectively incorporate blockchain into the long-term supervision mechanism!. [what is "sandbox supervision" As the name suggests, a sandbox is a box full of fine sand. We can doodle heartily. No matter whether the painting is good or not, at last, as long as we wipe it gently, the fine sand in the sandbox will return to flat.
        The concept of "regulatory sandbox" was first proposed by the UK government in March 2015. According to the definition of the UK financial conduct authority (FCA), "regulatory sandbox" is a "safe space". In this safe space, fintech enterprises can test their innovative financial products, services, business models and marketing methods without being immediately bound by regulatory rules when related activities encounter problems. This morning, the Hong Kong Securities and Futures Commission (SFC) issued new regulations on virtual assets, requiring funds with more than 10% of the asset size (AUM) as virtual assets to be sold only to professional investors. Any fund and brokerage institution investing in virtual assets need to register with the SFC.
        The SFC announced that it would launch a regulatory sandbox to provide a restricted regulatory environment for qualified enterprises to use fintech for regulated activities. The sandbox aims to enable qualified enterprises to identify and deal with risks or concerns related to their regulated activities through close communication with the SFC and rigorous supervision, and then provide services to the Hong Kong public. On the one hand, Hong Kong follows the regulatory sandbox of Singapore, Britain and Canada to apply to the transaction of blockchain virtual currency, so it launched this sandbox to monitor and test its risks. Therefore, Hong Kong has adopted some valuable practices of the current financial developed countries.
        On the other hand, Hong Kong takes a cautious attitude towards the transaction of blockchain or virtual currency, but reasonably tries to incorporate it into the supervision. Its effectiveness provides a certain reference and reference significance for Chinese Mainland on how to effectively incorporate blockchain into the long-term supervision mechanism in the future. 2. Reasonable and prudent supervision. For example, the United States believes that this thing is risky, and the United States Congress has also held many hearings, but it is not absolutely prohibited, but to encourage development. 3. Actively embrace and supervise. Singapore, Malta, Gibraltar and other countries with relatively small economic size and space actively embrace and regulate blockchain, hoping to build blockchain into a leading development center in their own countries.
        As long as it meets the national bottom line. For example, Gibraltar is dominated by the gambling industry, so it actively embraces and supervises. For example, Canada, the United Kingdom, Singapore and other countries have established regulatory sandboxes. These blockchain related enterprises, which may be enterprises applying bitcoin payment and bitcoin wallet, can monitor risks in this sandbox. If the test finds that the risks are controllable, they will issue licenses, reduce requirements and launch the market. If a country wants to enact a law specifically for blockchain, it usually takes more than five to ten years. The changes of blockchain and other financial technologies are changing with each passing day and developing very fast, so there will be an interesting problem. Five to ten years later, the law was officially introduced, but the object that was intended to regulate has changed, or even no longer exists, so it relies on legislation to regulate a certain business form, especially blockchain, There is often a helpless situation.
        In terms of international experience, Singapore and Switzerland are not in a hurry to introduce relevant policies and laws for blockchain, but try to incorporate some business forms into traditional laws for supervision. Singapore has a securities law. If the issuance of tokens is in line with the type of securities, it must be registered, submit a prospectus, etc. to comply with the requirements of traditional regulations, which is also very similar to the United States. In this way, the limitation that the law is difficult to keep up with the new business format is solved. The biggest risk brought by blockchain is financial risk. Both in blockchain and traditional finance, risks are similar, and the nature of finance has not changed much.
        Therefore, all countries, whether for the financing of blockchain project ICO or the transaction of virtual currency, have a common bottom line. For example, the trading platform must engage in user identification (KYC), must implement the anti money laundering law and the anti financing law, and must protect the rights and interests of customers and the network security of the trading platform. These bottom lines can be reflected in the blockchain regulatory policies of almost all major countries. In 2017, Japan amended the capital settlement law (Amendment) and Thailand issued the Royal digital assets act in May this year, which have something in common, that is, the virtual currency trading platform must allow a certain separation between its own funds and the funds of trading customers. It comes from the "Mentougou" incident in Japan in 2013, when customers' money was stolen, so the two funds must be separated.
        In the future, other countries will introduce regulatory policies, which will certainly exist, and will gradually become a bottom line, requiring good communication and consultation between regulators and practitioners;. Because blockchain is an emerging technology and develops very fast, legislators or regulators do not have a deep grasp of this industry. The proposed regulatory policies and programs may be significantly different from the development dynamics of this industry, so they need to negotiate. For example, in Singapore, the Monetary Authority (MAS) convenes local blockchain industry associations and blockchain enterprises on a regular or irregular basis to communicate and understand the latest development of this industry locally and globally, so it closely tracks.
        South Korea has a blockchain Association, which formulates a thick governance charter and sends it to regulators. The most noteworthy is the American hearing mode. The U.S. Congress held a blockchain hearing twice last year and twice this year. The Agriculture Committee under the U.S. Congress also held a blockchain hearing, and the financial committee also held a hearing. This hearing mode is worth referring to, because each such hearing will bring together industry leaders, such as coinbase, as well as blockchain legal experts, including some non-profit institutions. Through the questioning, demonstration and debate of the hearing, it will help to fully express the concerns of the state or legislators about this industry and the considerations of research experts and practitioners, On this basis, reach a national consensus, and then legislate on this basis.
        The process of the introduction of this law helps to make the rules of the law as grounded and suitable as possible to encourage the development of blockchain, and then control the risks. This kind of hearing mode is worth imitating in China. There are similar cases in China. Recently, the Internet Information Office will issue the "Regulations on the management of blockchain information service industry", which will convene industry research experts to demonstrate. After revision, it will be published online for comments. In May, 2018, Thailand passed the Royal digital assets act, which strictly regulates the virtual currency exchange. This royal digital assets act is a regulatory model referring to the securities law and has reference value and significance.
        However, whether Japan or the United States, it is easy for a country or a sovereign country to enact a bill or rule on the regulation of blockchain, or when a country or some countries completely ban ICO or virtual currency exchanges, it is easy to fail, because as long as there is a country in the world, even an island country and a small place, to express a friendship to this industry in the field of regulation and justice, The so-called supervision of another sovereign state may be ineffective. Therefore, the supervision of any sovereign country in the world in its own way poses a great challenge. Even if the United States has a very strong jurisdiction, it is easy to lose its effectiveness.
        The proportion of using virtual currency to engage in violations of laws and regulations may be small, but it always exists, such as money laundering and so on. This business form no longer uses traditional financial bank accounts or cross-border swft, which makes it a great challenge for the United States, China or other countries to track related crimes and anti money laundering or financing. Whether tokens or various currencies are naturally easy to be securitized and cross-border, so in the future, many inherent property rights will be mapped to this chain to form a certain share. At present, Chinese laws strictly regulate this kind of securitization. How to coordinate the development of this business with the existing traditional laws and promote this technology is also a great challenge.
        If any holder of currency expects the price of currency to increase or rise, a very important model is to hope that more communities will participate. This is a conventional model. So now we see many so-called ICO projects. In order to speed up their products and market promotion, a very important way is to cultivate communities or attract everyone's attention through airdrop. If there is no effective regulation in this mode, it is easy to blur the boundary between marketing and pyramid selling, and this marketing mode has no way to simply apply the current regulatory rules of pyramid selling, which is also a challenge to regulation. A large number of public blockchains do not have specific subjects, that is, once they are developed and pushed to the market by developers, anyone can join or quit at any time.
        These network nodes, such as bitcoin and Ethereum, range from 12000 to 15000, and are spread all over the world. You can enter and exit at any time. These entities can be ignored to a certain extent. There is no specific entity in this blockchain, or there is no specific entity. At this time, if there is a bug, network vulnerability or a person's assets have suffered losses here, there is a big problem when looking for a legally responsible entity. Correspondingly, there are no specific users. The so-called no specific users means that when using the public blockchain, there may be no need to register. There is no account as we understand it, such as QQ number, wechat number, e-mail. There is no traditional user registration mode. As long as you start this program, it can be applied. It is just an address of the public key. Can you compare the current account and connect our draft of information service supervision, This is actually a very challenging problem.
        Because there is no traditional account model, the object to be regulated may also be lost during supervision. In short, as a new type of business, blockchain challenges the international legal rules to a great extent. Because it is a new technology or industry, enterprises may have no chairman or shareholders in the future, and join or quit at any time. How should our legal or regulatory rules deal with it? I hope to have in-depth exchanges and discussions with you and explore a better answer. The securities and Futures Commission (SFC) is concerned that investors are increasingly interested in accessing virtual assets through funds and unlicensed trading platform operators in Hong Kong. The CSRC has identified significant risks arising from investing in virtual assets, which are described below.
        In response to the relevant risks, the CSRC is now issuing guidelines on the regulatory standards that virtual asset portfolio management companies and fund distributors should meet, and is also exploring a conceptual framework for the possible regulation of operators of virtual asset trading platforms. Technology is changing the face of the financial industry. Distributed ledger technology provides a way to digitally record the ownership of virtual assets in an anonymous manner, and helps promote point-to-point transactions. Virtual assets express value in digital form, also known as "cryptocurrency", "cryptoassets" or "digital tokens". These assets are characterized by different forms and continuous evolution, which means that they can be or claim to be a method of payment, and also entitle the token holder to obtain profits now or in the future, or to obtain a product or service, or both of the above functions.
        Since the most well-known digital token bitcoin was launched in 2008, the global public's interest in virtual assets has doubled. The market value of bitcoin and other digital tokens reached a peak in early January 2018, estimated to exceed $800billion (1). At present, there are more than 2000 different digital tokens traded around the world, with an estimated total market value of more than $200billion. Although the total market value of digital tokens has fallen sharply compared with the peak, there is still a large trading volume. In addition, the market demand for funds investing in virtual assets is also growing. Although virtual assets have not brought significant risks to financial stability (2), there is a broad consensus among securities regulators that virtual assets pose significant risks in investor protection.
        Depending on the scope of regulatory power, the scale of relevant activities and their impact on the interests of investors, and whether virtual assets are regarded as financial products suitable for regulation, the regulatory countermeasures for these risks vary from jurisdiction to jurisdiction. Under the existing regulatory system in Hong Kong, if the virtual assets involved do not fall within the legal definition of securities or futures contracts (or equivalent financial instruments), their markets may not be monitored by the SFC. Therefore, if investors buy and sell virtual assets through unregulated trading platforms or invest in virtual asset portfolios managed by unregulated portfolio management companies, they will not enjoy the protection provided under the securities and Futures Ordinance, such as ensuring the safe custody of assets and the fair and open market.
        If platform operators and portfolio management companies are not regulated, their qualifications for appropriate candidates (including their financial stability and competence) have not been evaluated, and their operations are not subject to any supervision. Virtual assets pose significant risks to investors, some of which are caused by the inherent nature and characteristics of virtual assets, while the other part comes from the operation of virtual asset trading platforms or portfolio management companies. Virtual assets generally lack physical asset support or government guarantee, and have no real value. At present, there is no generally accepted valuation principle for some virtual asset categories. The price in the secondary market will be affected by supply and demand, and has a short-term and volatile nature.
        If the capital pool of virtual assets is small and fragmented, the volatility faced by investors may further expand. There are no agreed standards and industry practices within the professional scope of accounting to explain how auditors should conduct assurance procedures, so as to obtain sufficient audit evidence on the existence and ownership of virtual assets, and determine the rationality of valuation. Trading platform operators and portfolio management companies may store customer assets in online wallets (that is, in an online environment with an Internet interface), and online wallets are vulnerable to hackers. It is common for hackers to invade virtual asset trading platforms and virtual assets to be stolen due to network attacks.
        It may be difficult for victims to recover losses from hackers or trading platforms, which can amount to hundreds of millions of dollars. Given the limited qualified custodian solutions available, virtual asset funds face unique challenges; The alternative solutions may not be completely effective. Unlike regulated stock exchanges, the market for virtual assets is still in its infancy and does not operate under a set of recognized and transparent rules. Operation interruption, market manipulation and illegal activities occur from time to time, which will cause losses to investors. Virtual assets are generally sold or held in an anonymous manner. In particular, platforms that allow the exchange of legal tender and virtual assets are inherently at high risk of money laundering and fund-raising activities.
        If criminal activities are involved, investors may not be able to recover their investment due to law enforcement actions. The operator of the virtual asset trading platform may act as the agent and principal of the customer at the same time. Virtual asset trading platform image
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