Hong Kong's Securities and Futures Commission (SFC) and the Accounting and Financial Reporting Council (AFRC) have signed a new Memorandum of Understanding to strengthen financial reporting and audit checks for licensed cryptocurrency firms. The agreement replaces a 2021 MoU and brings crypto firms under Hong Kong's regular financial oversight.
Under the new framework, crypto firms holding an SFC license must subject their corporate balance sheets, proof-of-reserves, and client-asset custody records to third-party assurance reviews. The agreement also covers audit and assurance work conducted by their auditors.
Enhanced Regulatory Coordination
The MoU establishes a stronger system for joint supervision between the two regulators. The SFC and AFRC can now share information in real time, refer cases directly, provide technical support, and conduct joint on-site inspections. This coordination allows regulators to respond more quickly when issues are identified.
AFRC CEO Janey Lai stated that the stronger information-sharing system will help regulators identify emerging risks earlier. SFC Chairman Kelvin Wong said the wider cooperation will provide more comprehensive oversight across Hong Kong's financial sector.
Impact on Compliance and Investor Protection
The tighter rules could increase compliance costs for smaller crypto firms, as they may need stronger accounting systems and more audit support. However, closer regulatory checks could provide investors with more information about the financial position of licensed firms.
By requiring crypto firms to maintain clear and accurate financial records, regulators aim to detect problems earlier and reduce the risk of major exchange failures. If a firm reports false figures, conceals wallet balances, or uses unverified offshore funds, the SFC and AFRC can launch a joint investigation.
The move follows Hong Kong's broader expansion of digital asset rules, including previous SFC measures covering client asset protection, staking, and virtual asset trading platforms.
