Until recently, digital assets were assumed to be outside the scope of traditional financial regulation. But a recent SEC ruling in the USA suggested that some ICO tokens, at least, are securities.

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While rulings by the SEC are a matter for US citizens and don’t directly affect Hong Kong, common law is based on precedent, and judges in other common-law countries will be reading the rulings coming out of the US with interest. While Hong Kong’s SFC hasn’t made any definite statements about this, therefore, we can expect the SEC and federal judges’ rulings to have an impact.

Legal and…


In this post we’ll clear up what the difference is between a trustee and a custodian, and lay out what each of them does to make a trust safe and effective.

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When making investments, the common actors you usually come across are trustees and custodians. Initially, it can seem difficult to tell them apart; in fact, they each have a clearly defined role in the global financial system value-chain.

Trustee vs custodian: the difference

A Trustee manages assets on behalf of the beneficiary of a trust, an estate or another party. A custodian is the entity that actually holds the assets in question for safekeeping.

Custodians physically secure assets, but don’t have the authority to make management decisions. …


The digital assets space suffers from a lack of trust, which stems ultimately from a lack of appropriate structures. Businesses in this space are vulnerable to attacks by bad actors using social engineering or coding skills to steal assets. But the problem doesn’t stop there — in fact, that’s a less important risk for the future of the space.

Besides hacking, there is also a considerable risk of mismanagement. The typical digital asset company is founded and operated by professionals in technology. They understand tech, but they often have little professional experience of the financial world.

Funds, exchanges and transfer…


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One of the missing links in the digital asset space is sensible regulation. The SEC and FINRA just took a vital step forward, but there are still questions around accountancy and the role of brokerage firms.

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On July 8 this year, the SEC and FINRA issued a joint statement on the regulatory issues facing digital asset custody and transactions. Issued from the SEC’s Division of Trading and Markets and FINRA’s office of general counsel, the statement brings good news for the digital asset business and foreshadows the decisions we can expect in other common-law jurisdictions, particularly Hong Kong.

One of the first things that stands out on reading the statement is the careful use of the term ‘digital asset securities.’ This isn’t totally new ground for the SEC, which has issued guidance in the past…


On November 1 last year, the Hong Kong Securities and Futures Commission announced new regulations governing portfolio managers and distributors of virtual asset funds.

‘The measures announced today allow us to regulate the management or distribution of virtual asset funds in one way or another so that investors’ interests would be protected either at the fund management level, at the distribution level, or both,’ said Ashley Alder, the SFC’s CEO. ‘We hope to encourage the responsible use of new technologies and also provide investors with more choices and better outcomes.’

(In the same statement, the SFC announced a framework, initially…


In January, the Companies Registry announced that a new licensing regime for trust and companies services providers (TCSPs) would come into force at the end of March.

The impetus for the new regime came from anti-money-laundering efforts and the new regulations fall under AMLO, the Anti-Money Laundering and Counter-Terrorist Financing Ordinance.

That marks a big change for Hong Kong’s TCSPs. Previously, the burden of regulation in Hong Kong was light. Trust Companies were obligated to register with the Companies Registry’s Registrar of Trustees, but other than this were not directly regulated.

Registry and qualification

Now, though, TCSPs will be obligated to register —…


The hype around cryptocurrencies, and the fact that relatively few people clearly understand their underlying mechanism, makes them a fertile breeding ground for questionable business practices. ICOs are in a similar position: presented to some investors as a get-rich-quick scheme with a black box at its center, they have been involved in poorly-designed launches, vaporware and open, blatant scamming and fraud.

Neither cryptocurrencies nor ICOs are inherently scammy or dishonest, and even venerable fiat institutions aren’t invulnerable to being used for scams; just look at Deustche bank, recently raided in a money-laundering case related to the notorious Panama Papers.

However…

Richard Bayston

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