After France, Hong Kong Now Intends to Regulate DeFi

Lavina Daryanani

Hong Kong has been making rapid strides in the Crypto, Web3, and DeFi space. Well, the special administrative province intends to become the digital hub and its actions are in line with the same. Just a few hours back, the region’s ZA Bank, revealed that it is enabling fiat and crypto transfers while offering account services to the city’s expanding digital asset industry. This basically means Hong Kong’s largest virtual bank would now act as a “settlement bank” for crypto exchanges.

Hong Kong is parallelly looking to notch up its regulatory game as well. Keith Choy, the Interim Head of Intermediaries at Hong Kong’s Securities and Futures Commission [SFC], recently said at a Web3 Festival in Hong Kong that DeFi projects need to be regulated. In fact, as long as DeFi activity falls within the ambit of the Securities and Futures Ordinance [SFO], it needs to face the same regulatory requirements as traditional financial activity.

Also Read: Hong Kong’s Largest Virtual Bank To Act as a “Settlement Bank” for Crypto Exchanges

Furthermore, he reportedly told that if virtual assets are involved in decentralized exchanges, they also need to apply for licenses. Chinese Journalist Colin Wu additionally pointed out,

He said that many DeFi projects are not decentralized, and a small number of people or officials control most of the tokens, and SFC must ignore their superficial statements to study the substantive content.

Regulators face issues pertaining to financial stability and limited transparency due to a lack of data and unregulated firms and activities, according to Choy. He went on to underline and talk about market integrity issues related to price oracle manipulation and front-running transactions.

Also Read: Europe Must Reduce its Dependency on US: France President Macron

Other countries also rush to regulate DeFi

Regulators from countries all around the world are gradually bringing DeFi under their radars. In the most basic essence, DeFi was created to steer clear of regulations. However, the latest views of regulators paint a different picture.

Just a day back, a report from the French central bank noted DeFi projects could be forced to incorporate or prove that they meet governance and security rules and standards.

A consultation paper by the ACPR noted that new rules should also stop intermediaries from selling highly leveraged products to regular retail investors. The ACPR is the arm of the French Central Bank that supervises banks and insurers. Its report further noted that DeFi permits the use of high-risk products. Such products are usually restricted to seasoned professionals in regular finance.

The consultation period during which the ACPR asks for opinions on a proposal is open until May 19. The ACPR also said it wanted to “explicitly” elongate the planned European Union consumer protection rules to cover the DeFi base.

Parallelly, the U.S. Department of the Treasury recently noted that DeFi services aren’t compliant with anti-money laundering and terrorist financing rules. In fact, it also asserted that it poses “the most significant current illicit finance risk.” The U.S. Treasury additionally warned that DeFi is used by North Korea and scammers to launder dirty money. It also asserted that it threatens national security.

Also Read: U.S. Treasury Says Decentralized Crypto Markets Threaten National Security