The Hong Kong Stock Exchange (HKEX) has proposed that fintech firms, including those focused on blockchain and cryptocurrency, are best regulated under existing financial regulations.
In a research report published Oct. 18, the HKEX’s Chief China Economist’s Office and Innovation Lab looked primarily at the potential of blockchain and AI within areas of finance, providing an overview of blockchain and possible use cases in trading, settlement and equities markets, for example.
Emerging technologies such as blockchain, it says, could be “integrated in the areas of investment, trading, clearing and settlement,” adding that regulations, too, should be common to all companies in the finance space.
While different jurisdictions may apply different rules to the technology in some use cases, the authors suggest applying what they call the “consistency principle” in financial regulation – that is, that “financial businesses of the same nature should be subject to the same regulation.”
“The principle of consistency requires that … the issuance of digital currencies and digital funds must be governed under the existing securities regulatory framework,” the authors said, adding:
“The public fund-raising activities of shares issuance by issuers — which do so with merely a prospectus published on the internet but without any underwriter nor compliance with the IPO registration procedures or strict disclosure requirements — must be rectified by subjecting them to the governance by the Securities Law.”
Further, bringing similar financial services under existing rules would “maintain fair competition, ensure regulatory effectiveness and prevent regulatory arbitrage,” the report argued.
One potential issue raised, though is that the fast-changing nature of fintech can potentially open up regulatory “loopholes.” As a result, it said, regulations need to be “continuously updated” to keep pace with technological change.
The report came on the same day that that global money-laundering watchdog, the Financial Action Task Force, said it will draw up rules for international cryptocurrency regulation by next June.
The move would see any country that wants to stay included in the international finance system having to license and regulate exchanges, wallet providers and firms connect to initial coin offerings.
Earlier in March of this year, HKEX was reportedly in talks with its antipodean counterpart, the Australian Securities Exchange (ASX), to learn from its experiences in shifting over to a blockchain settlement system.
Stock exchange image via Shutterstock