BTC $82,991 
ETH $2,666 
USDT $0.9998 
BNB $760.01 
XRP $1.49 
USDC $0.9998 
SOL $118.26 
TRX $0.3339 
ZEC $1,532 
FIGR_HELOC $1.06Hong Kong regulators widen reporting oversight to licensed crypto firms
The SFC and AFRC signed a new memorandum extending financial reporting, audit and compliance cooperation to licensed virtual asset service providers.
The short answer
Hong Kong's Securities and Futures Commission and the Accounting and Financial Reporting Council signed a new memorandum of understanding. It extends their cooperation on financial and compliance reporting, audit and assurance work to SFC-licensed virtual asset service providers. The agreement replaces a 2021 memorandum and sets up information sharing, case referrals, mutual assistance and coordinated inspections and investigations. Coinpedia reports that licensed crypto firms must subject balance sheets, proof-of-reserves and client-asset custody logs to third-party assurance.
What happened
Hong Kong's Securities and Futures Commission (SFC) and the Accounting and Financial Reporting Council (AFRC) signed a new memorandum of understanding. The agreement extends their regulatory cooperation to financial and compliance reporting by SFC-licensed virtual asset service providers, licensed corporations, registered open-ended fund companies and authorized funds.
The memorandum also covers related audit and assurance work. It establishes a framework for information sharing, case referrals, mutual assistance and coordinated inspections and investigations. It replaces a 2021 MoU signed by the SFC and the Financial Reporting Council, which was renamed the AFRC in 2022.
Coinpedia reported that the rules require crypto firms holding an SFC license to put corporate balance sheets, proof-of-reserves and client-asset custody logs through third-party assurance work. Auditors also fall under the cooperation framework.
SFC Chair Kelvin Wong said the expanded cooperation would provide "more comprehensive oversight" across a broader range of entities and activities in Hong Kong's financial sector. AFRC CEO Janey Lai said the stronger information-sharing system will help regulators "identify emerging risks earlier."
Why it matters
Coinpedia reported that regulators aim to spot problems earlier and reduce the risk of major exchange failures by requiring clear and accurate financial records. It added that if a firm reports false figures, hides wallet balances or uses unverified offshore funds, the SFC and AFRC can launch a joint investigation.
The tighter rules could increase compliance costs for smaller crypto firms, which may need stronger accounting systems and more audit support, according to Coinpedia. The same report said closer checks could give investors more information about the financial position of licensed firms.
Under the agreement the two regulators can share information in real time, refer cases directly, provide technical support and carry out joint on-site inspections. Coinpedia said this allows them to act faster when they find issues at a crypto firm.
Background
Hong Kong has been expanding its digital asset framework. In January, regulators outlined plans for new rules covering crypto advisory services, and the SFC has introduced frameworks for virtual asset margin financing and perpetual contracts. Coinpedia also pointed to existing SFC measures covering client asset protection, staking and virtual asset trading platforms.
What is still unclear
- The reports do not name which licensed firms will face joint inspections first, or when the cooperation starts in practice.
- Coinpedia said compliance costs could rise for smaller firms, but neither report gives an estimate of the extra cost.
Questions readers ask
What did Hong Kong's SFC and AFRC agree to?
They signed a new memorandum of understanding that extends their cooperation on financial and compliance reporting, audit and assurance work to licensed virtual asset service providers. It also sets up a framework for information sharing, case referrals, mutual assistance and coordinated inspections and investigations.
Which firms are covered by the new MoU?
The agreement extends to financial and compliance reporting by SFC-licensed virtual asset service providers, licensed corporations, registered open-ended fund companies and authorized funds.
Does the new MoU replace the 2021 agreement?
Yes. It replaces a 2021 MoU signed by the SFC and the Financial Reporting Council, which was renamed the AFRC in 2022.
Will the changes raise compliance costs for crypto firms?
Coinpedia reported that the tighter rules could increase compliance costs for smaller crypto firms because they may need stronger accounting systems and more audit support. The reports do not give cost figures.
