In a recent development, regulators in Hong Kong have proposed a self-regulatory approach for the city's cryptocurrency sector. The Hong Kong Securities & Futures Professionals Association (HKSFPA) has suggested the establishment of a self-regulatory committee within the crypto firms to oversee compliance.

The HKSFPA emphasized the need for a more balanced approach to supervision, stating that while regulatory oversight is essential, there is also a requirement for an organization to promote overall industry development. The recommendation letter, dated April 22, underscores Hong Kong's ambition to maintain its position as an international financial hub and remain competitive in the global securities market.

The proposal suggests that the Securities & Futures Commission (SFC) retains its authority to supervise market conduct but delegates licensing powers solely to the securities industry. It advocates for the creation of a self-regulatory institution comprising representatives from the futures industry, asset management industry, and virtual asset industry.

While self-regulation offers benefits such as industry autonomy and flexibility, there are also associated risks. The example of Lithuania, where lax oversight led to compliance failures and embezzlement, serves as a cautionary tale. However, compared to other jurisdictions, Hong Kong regulators have shown more tolerance towards virtual asset firms.

For instance, the SFC recently approved spot Bitcoin and Ether exchange-traded funds (ETFs) for several issuers, indicating a relatively favorable stance towards crypto products. In contrast, regulatory bodies like the U.S. Securities and Exchange Commission (SEC) have been more cautious, with no approval yet for a spot Ether ETF and a challenging outlook for crypto exchange licenses.