Hong Kong and Canada Tighten Crypto Regulations Following FTX Downfall

In two separate statements this week, the finance watchdogs of Hong Kong and Canada warned investors of risks associated with crypto providers. Both countries are beginning to introduce and expand crypto regulations to fight back.

Investors have been alerted to the risks associated with virtual asset (VA) platforms that offer “deposits, savings, profits, or staking” services by the Hong Kong Securities and Futures Commission (SFC). The Canadian Securities Administrators (CSA) have strengthened its guidelines for regulating cryptocurrency.

Hong Kong Recognizes Risks of Investing in Unregulated Platforms

After the FTX collapse, the Hong Kong Securities and Futures Commission (SFC) issued a warning to investors that they might suffer a large or even total loss of money, especially in the event of fraud or the failure of a VA platform.

Platforms that guarantee fixed or high interest rates on deposits have received specific attention from the government. The regulator emphasized that unlike insured bank accounts, cryptocurrency deposits are uncontrolled.

SFC underlined, “VA are exposed to heightened risks including insufficient liquidity, high price volatility, opaque pricing, potential market manipulation, hacking and fraud and may lose all value.”

The SFC has not reviewed its offer or marketing materials, leaving investors exposed, it further said. However, according to a recent report by Financial Secretary Paul Chan Mo-po, cryptocurrency is “unstoppable.” This could indicate that the area will tighten regulations without hindering the sector’s expansion.

Stricter Cryptocurrency Regulation and Custody Rules in Canada

The Canadian Securities Administrators (CSA) has announced that it is stepping up its monitoring of cryptocurrencies. The Canadian regulator has been forced to broaden the criteria that apply to domestic platforms as a result of FTX’s failure. This includes any foreign websites that Canadians can visit.

The expanded regulations mandate the correct custodianship of Canadian clients’ funds as well as their separation from the platform’s core operations. Additionally, offering leverage or margin to any Canadian clients will be prohibited.

According to the CSA, competent custodians are those who are under the control of a financial regulator in Canada, the United States, or a comparable nation. It’s interesting to note that CSA thinks stablecoins or stablecoin arrangements may be considered derivatives or securities. As a result, the government has warned cryptocurrency exchanges that it is illegal to permit Canadian customers to trade or receive exposure to such assets.