Cryptocurrencies: how “same same” are the MAS and the HKSFC in their respective approaches?

On 24 May 2018, the Monetary Authority of Singapore (“MAS”) issued a press release stating that it had taken warning actions in relation to the trades and offerings involving cryptocurrencies. This follows earlier warnings to investors issued by the MAS last year, as well as comparable warnings given and actions taken by the Hong Kong Securities and Futures Commission (“HKSFC”) earlier this year and late last year.

Recent MAS action

In its 24 May 2018 media release (“MAS 24 May 2018 Media Release”) (Note 1), the MAS announced that it had written to eight digital token exchanges to warn them of the need to seek authorisation as approved exchanges or recognised market operators if the tokens traded constitute “securities” under the Singaporean Securities and Futures Act (“Singapore SFA”). A warning was also issued by the MAS to the issuer of an initial coin offering (“ICO”) to stop offering tokens that are considered to constitute “securities” to Singapore-based investors. The issuer, whose identify is not made public, returned all funds raised from Singapore-based investors in the ICO process.

The MAS 24 May 2018 Media Release is targeted specifically at token exchanges and issuers, and can be said to be a culmination of previous investor-focused warnings issued by the MAS. In its media release of 1 August 2017 (“MAS 1 August 2017 Media Release”) (Note 2), and in its joint media release with the Commercial Affairs Department of the Singapore Police force of 10 August 2017 (“MAS/CAD 10 August 2017 Media Release”) (Note 3), the MAS did mention the issue regarding the definition of “securities” under the Singapore SFA as noted above, as well as issue surrounding whether certain cryptocurrency products constitute “collective investment schemes” under the Singapore SFA. It also noted various risks associated with investing in cryptocurrency, such as trading in at least some of the products being unregulated, the existence of money laundering and terrorist financing risks, the speculative nature of at least some of these investments, and the difficulties in seeking recourse arising from any losses.

What about the HKSFC?

In its 19 March 2018 enforcement news (“HKSFC 19 March 2018 Enforcement News”) (Note 4), the HKSFC announced that it had halted the ICO of Black Cell Technology Limited, which in turn unwound the ICO in so far as Hong Kong investors were concerned and returned tokens to them. The HKSFC considered that the structure of the ICO in question was such as to constitute a “collective investment scheme” under the Hong Kong Securities and Futures Ordinance (“Hong Kong SFO”). An interest in a collective investment scheme in turn constitutes “securities” under the Hong Kong SFO, and offerings of securities are regulated by the HKSFC.

The HKSFC 19 March 2018 Enforcement News follows public pronouncements in late 2017 and early 2018. In its “Statement on Initial Coin Offerings” of 5 September 2017 (“HKSFC 5 September 2017 Statement”) (Note 5), the HKSFC noted that certain ICOs may constitute offers of securities. This, together with the dealing of, advising on and managing of funds containing products offered in such ICOs would be regulated under the Hong Kong SFO. There were also mentions of the risks associated with ICOs and investments in digital tokens being unregulated, as well as fraud, liquidity, volatility and transparency risks. In addition, the HKSFC’s corporate news of 9 February 2018 (“HKSFC 9 February 2018 Corporate News”) (Note 6) mentioned the repeated similar warnings as the HKSFC 5 September 2017 Statement. Further, the HKSFC warned seven Hong Kong-based or connected cryptocurrency exchanges and seven ICO issuers about the laws and regulations against unlicensed and/or unauthorised handling of cryptocurrencies that constitute “securities” under the Hong Kong SFO.

It all sounds the same, right?

In broad terms, it would appear that the MAS and the HKSFC are taking similar approaches to monitoring and regulating cryptocurrency markets and transactions in their respective jurisdictions. That would in itself be hardly surprising, given that both cities are considered as being amongst Asia’s leading financial centres.

Nonetheless, anecdotally speaking, it is sometimes rumoured within the financial sector that Singapore’s environment appears in recent times to be more “friendly” than that of Hong Kong’s when it comes to cryptocurrency markets and transactions. Do the MAS’ and the HKSFC’s various recent statements and their apparent similarity put this rumour to rest? Or are their sufficient differences in nuances and emphases in the two regulators’ respective statements hint at least cosmetic or perhaps even substantive differences? We are not in a position to (and nor would it in any event be appropriate for us to) speculate in this regard. For present purposes, we would merely set out, by way of examples, a number of points of comparison from the MAS’ and the HKSFC’s statements:

  • In the context of risks for investors, both the MAS and the HKSFC acknowledge in their statements that at least parts of the cryptocurrency markets and transactions in their respective jurisdictions are unregulated. Nonetheless, the MAS seeks to stress in the MAS 24 May 2018 Media Release that “[t]he number of digital token exchanges and digital token offerings in Singapore has been increasing. We do not see a need to restrict them if they are bona fide businesses” (emphasis added).
  • While both the MAS and the HKSFC have taken actions to halt ICOs that they had considered to be in breach of the laws and regulations of their respective jurisdictions, the MAS did not name the ICO issuer that it had halted, but the HKSFC did so.
  • Aside from risks associated with cryptocurrency markets and transactions potentially being unregulated, both the MAS and the HKSFC do seek to warn investors of various other types of risks, and that investors should exercise caution. In this regard, the HKSFC appears to be relatively more explicit, going so far as to say in the HKSFC 9 February 2018 Corporate News that “[i]f investors cannot fully understand the risks of cryptocurrencies and ICOs or they are not prepared for a significant loss, they should not invest”.
  • Both the MAS and the HKSFC stress that it is essential for various types of cryptocurrency market players to comply with laws and regulations. The HKSFC appears to have expressed this requirement in more far-reaching and pro-active (in terms of duties of relevant market players) terms, stating in the HKSFC 9 February 2018 Corporate News that “[w]e will continue to police the market and enforce when necessary… But we are also urging market professionals to do proper gatekeeping to prevent frauds or dubious fundraising and to assist us in ensuring compliance with the law” (emphasis added).

Do these comparisons point to differences big and small in the MAS’ and the HKSFC’s respective approaches to cryptocurrencies? Or are they just matters of semantics or emphases at the margins that do not detract from what at first glance would appear broadly to be (in East Asian English vernacular) “same same” approaches as between the MAS and the HKSFC? This is probably not a question that anyone (save perhaps for the regulators themselves) can answer with any certainty at this stage. The answers to these questions will ultimately lie in these two regulators’ future actions, as well as the growth and extent of future cryptocurrency market activities in Singapore and Hong Kong.

 

1. http://www.mas.gov.sg/News-and-Publications/Media-Releases/2018/MAS-warns-Digital-Token-Exchanges-and-ICO-Issuer.aspx
2. http://www.mas.gov.sg/news-and-publications/media-releases/2017/MAS-clarifies-regulatory-position-on-the-offer-of-digital-tokens-in-Singapore.aspx
3. http://www.mas.gov.sg/news-and-publications/media-releases/2017/Consumer-Advisory-on-Investment-Schemes-Involving-Digital-Tokens.aspx
4. http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/enforcement-news/doc?refNo=18PR29
5. http://www.sfc.hk/web/EN/news-and-announcements/policy-statements-and-announcements/statement-on-initial-coin-offerings.html
6. http://www.sfc.hk/edistributionWeb/gateway/EN/news-and-announcements/news/corporate-news/doc?refNo=18PR13