The Hong Kong Securities and Futures Commission (SFC) has announced new requirements for virtual asset platforms aimed at improving the security of client digital assets. These measures come in response to incidents that highlight existing deficiencies in security practices.
New Requirements for Virtual Asset Platforms
On Friday, the SFC published a circular for all licensed virtual asset trading platforms (VATPs) indicating the need to review and strengthen custody practices. SFC Executive Director of Intermediaries Dr. Eric Yip stated: 'Client asset protection must always remain a top priority for all licensed VATPs, which can leverage SFC’s guidance to improve their custody practices.'
Wallet Vulnerabilities and Past Incidents
The SFC’s examination of VATPs revealed gaps in several operational controls. In June 2024, three unregistered VATPs were identified, which led to accusations of fraud and misleading information. Vulnerabilities in VATP cybersecurity were also highlighted, noting outdated encryption methods and lax access controls. New measures require implementing network segmentation protocols and robust access controls.
Investment Advice on Stablecoins
On Thursday, the SFC, along with the Hong Kong Monetary Authority, issued a joint statement regarding recent changes in the stablecoin market. They emphasized the need for caution when investing in stablecoins, urging thorough research before committing funds. SFC CEO Julia Leung noted that sudden price fluctuations of stablecoins indicate investors should be aware of associated risks.
The new SFC requirements aim to foster a safer environment for virtual assets in Hong Kong, enhancing client protection and reinforcing trust in the digital asset ecosystem amid rising global risks.
