jakiro
Author: Zhang Feng
According to media reports on October 30, Hong Kong Securities Regulatory Commission Chairman Huang Youcheng said that Hong Kong currently does not have regulations regulating listed companies’ investment in cryptocurrency, and will monitor the market situation and provide relevant guidance for the market in the future.
Facing the emerging field of crypto-assets, listed companies not only face unprecedented opportunities, but also need to deal with many unknown risks and challenges.Should we choose to wait and see conservatively, or make proactive arrangements?Should we go left or right?This may be a strategic choice issue for both listed companies and regulators.
1. What is the digital asset treasury business of listed companies?
The digital asset treasury business of listed companies refers to a series of business activities in which listed companies establish a professional digital asset management system and incorporate various digital assets such as cryptocurrencies, tokenized assets, and central bank digital currencies (CBDC) into the scope of corporate treasury management to achieve asset allocation, liquidity management, risk control, and value appreciation.This business form is not only a product driven by technology, but also a profound change in financial management concepts.
The digital asset treasury business has three distinctive features: First, the digital assets as management objects are different from traditional financial assets such as cash and deposits. Digital assets are based on distributed ledger technology (DLT) and are programmable, divisible, easy to circulate, and highly transparent.These characteristics give digital assets unique advantages in liquidity, cross-border circulation and smart contract applications.Second, the intelligence of management methods.Through technological innovations such as smart contracts, algorithmic trading, and artificial intelligence, companies can realize automation, precision, and real-time treasury management, and greatly improve the efficiency of capital operations.Third, the subversive nature of management thinking.Digital asset treasury breaks the time and space limitations of traditional treasury management, realizes 7×24 real-time operations around the world, and promotes the transformation of corporate financial management from static and conservative to dynamic and proactive.
Looking at the specific business model, the digital asset treasury business covers multiple dimensions: in terms of asset allocation, companies can convert part of their cash reserves into mainstream cryptocurrencies such as Bitcoin and Ethereum to hedge inflation risks and pursue higher returns; in terms of liquidity management, using stable coins for cross-border payment settlement can significantly reduce handling feesAnd shorten the time to account; in terms of risk management, hedging the risk of digital asset price fluctuations through derivatives such as futures and options; in terms of strategic investment, actively participate in investments in emerging fields such as decentralized finance (DeFi), non-fungible tokens (NFT), and the Yuanverse to explore new growth points and strengthen technology layout.
2. Is it a gray area or a clear restricted area?
At present, a unified digital asset regulatory framework has not been formed globally, and there are significant differences in the legal attitudes of various jurisdictions towards listed companies operating digital asset treasury business, making this field still in a “grey area” to a certain extent.
Taking Hong Kong as an example, the Hong Kong Securities Regulatory Commission has issued a series of regulatory documents such as the “Guidelines for Virtual Asset Trading Platforms” to provide legal channels for professional investors to participate in virtual asset transactions.However, there are no specific regulatory rules specifically targeting the treasury business of listed companies.
Under Hong Kong’s current legal framework, there are currently no clear prohibitive regulations specifically targeting listed companies’ participation in digital asset treasury business.However, relevant activities are subject to the current financial regulatory system.First, listed companies must comply with the Securities and Futures Ordinance.If the digital assets involved constitute the definition of “securities” (such as having equity or debt characteristics), their trading and management must comply with licensing requirements, otherwise it will be illegal.Secondly, the directors’ liability provisions under the Companies Ordinance require management to act in the overall interests of the company and manage risks prudently.By allocating company funds to highly volatile digital assets, the board of directors has an obligation to prove that its decisions comply with standards of diligence and diligence.In addition, the relevant Listing Rules of the Hong Kong Stock Exchange clearly require listed companies to disclose material information in a timely manner.Establishing a digital asset treasury may trigger disclosure obligations, particularly if there are significant fluctuations in the value of the assets.It is worth noting that Hong Kong is gradually establishing a virtual asset service provider (VASP) licensing system.If a listed company gets involved in related businesses, it may need to evaluate whether it needs to apply for corresponding licenses.
At the international level, regulatory attitudes show a diversified trend.The U.S. Securities and Exchange Commission (SEC) tends to recognize most digital assets as securities, subject to securities law supervision, and has extremely strict disclosure requirements and investor protection measures for digital asset transactions; the Monetary Authority of Singapore (MAS) adopts a relatively open stance, issuing licenses to digital asset service providers through the Payment Services Act, and launching a “regulatory sandbox” to encourage innovation; the Cryptoasset Market Regulation Act (MiCA) passed by the European Union has established a relatively comprehensive regulatory system, covering all aspects of asset issuance, trading and custody, providing clear legal expectations for the market.
Generally speaking, there are currently no jurisdictions that explicitly prohibit listed companies from operating digital asset treasury businesses, but they are generally required to comply with existing laws and regulations such as securities laws, company laws, and anti-money laundering laws, and to perform higher-standard obligations in terms of information disclosure, risk management, and corporate governance.When listed companies get involved in this field, they must remain highly sensitive to regulatory developments in relevant jurisdictions and establish corresponding compliance mechanisms.
3. What practices are likely to involve violations and crimes?
In actual operation, if a listed company does not establish a complete compliance system, it is easy to run into legal red lines.
Information disclosure violations.If a listed company fails to disclose digital asset positions, transactions and related risks as required, it may constitute a misstatement or material omission.For example, a U.S. listed company was investigated by the SEC and fined heavily for failing to disclose its large Bitcoin investment in a timely manner.The high volatility of digital assets means that their value may have a significant impact on a company’s financial condition, so timely, accurate and complete information disclosure is crucial.
Insider Trading.The digital asset market is traded 24 hours a day, and information spreads quickly, making the definition and prevention of insider information facing new challenges.If insiders of listed companies use undisclosed digital asset-related information to make profits from transactions, this will constitute insider trading and face serious legal consequences.
Market manipulation.The behavior of influencing digital asset prices through false transactions, wash trading, “pump and dump” and other means is more hidden in the digital asset market with strong anonymity and convenient cross-border flows, but it is also becoming the focus of law enforcement by regulatory agencies in various countries.
Money laundering and terrorist financing.The anonymity and cross-border liquidity of digital assets make them susceptible to illegal fund transfers.Listed companies may face severe penalties if they fail to perform anti-money laundering obligations such as customer identification (KYC), transaction record keeping, and suspicious transaction reporting.A Hong Kong-listed company was once investigated for cross-border fund transfers through digital assets, highlighting the importance of anti-money laundering compliance.
Tax violations.The tax treatment rules for digital assets are still unclear and can easily lead to disputes.If listed companies fail to accurately calculate and pay taxes such as capital gains tax generated from digital asset transactions, they may face the risk of tax audits and penalties.Tax authorities in various countries are gradually strengthening supervision of digital asset transactions, and companies need to pay close attention to the evolution of relevant policies.
In addition, technical security risks cannot be ignored.Events such as loss of private keys, hacker attacks, and smart contract vulnerabilities may lead to permanent loss of assets, and there are still legal gaps in the determination of relevant responsibilities.Listed companies need to establish strict technical safety systems and emergency plans to prevent such risks.
4. What is the attractiveness of the business?
Despite the many risks, the digital asset treasury business still has strategic value that cannot be ignored for listed companies.
Financial management innovation.Digital assets can achieve near-real-time clearing and settlement, greatly improving the efficiency of capital use; through the programmable features of smart contracts, companies can achieve precise cash flow management, automated dividend payments and condition-triggered financing; using stablecoins for cross-border payments can significantly reduce handling fees, shorten the time to account, and optimize global capital allocation.
Diversify asset allocation.In the context of lower yields on traditional assets and increasing inflationary pressure, digital assets provide new investment options for listed companies, helping to diversify investment risks and increase overall returns.Companies such as MicroStrategy have achieved substantial financial returns by allocating Bitcoin, attracting many businesses to follow suit.
The integration of industry and finance is deepened.For listed technology companies, the digital asset treasury business can form a synergistic effect with the main business, promote the application of blockchain technology in scenarios such as supply chain finance, digital identity, and Internet of Things data transactions, and promote the digital upgrade of the industrial ecology.
Increase brand value.Actively embracing digital assets can help shape an innovative and forward-looking corporate image, attract young investors and outstanding talents, and increase market valuation.In the era of digital economy, the technological sensitivity and innovation of enterprises have become important indicators of competitiveness.
5. Governance dilemmas under the collision of old and new paradigms
The participation of listed companies in the digital asset treasury business has brought unprecedented challenges to regulatory agencies.
Regulatory arbitrage risk.The cross-border flow characteristics of digital assets allow listed companies to avoid stricter supervision through structural design, triggering regulatory competition and even a “race to the bottom” phenomenon, threatening global financial stability.
Technology understanding gap.Regulatory agencies’ understanding of new technologies such as blockchain, smart contracts, and zero-knowledge proofs lags behind market innovation, making it difficult to formulate highly targeted and operational regulatory rules, resulting in regulatory gaps or over-regulation.
Risk transmission intensifies.The high volatility and high correlation of the digital asset market may be transmitted to the broader capital market through the balance sheets of listed companies, amplifying systemic risks.Especially under extreme market conditions, digital asset treasury may become a node of risk contagion.
Investor protection conundrum.It is difficult for ordinary investors to understand the complex risks, valuation logic and technical principles of digital assets, and the problem of information asymmetry is even more prominent.Once a risk event occurs, investors may face heavy losses and have an impact on market confidence.
Regulatory jurisdiction conflicts.Innovative models such as decentralized finance (DeFi) pose challenges to traditional regulatory jurisdictions, and the cross-border regulatory collaboration mechanism is not yet complete, resulting in law enforcement difficulties and regulatory loopholes.
6. Strategic choice to build Hong Kong as an international center for digital finance
Facing the development trend of digital asset treasury business, Hong Kong, as an international financial center, should seize the historical opportunity and lead the development of the industry through the following measures while adhering to the bottom line of risk:
Closely adhere to the digital asset policy statement.The Hong Kong government should combine the previously issued series of statements on digital asset policies to study how to embody the principle of “same business, same risks, same supervision” in the supervision of digital asset treasury businesses, so as to prevent risks and avoid excessive regulation that inhibits innovation.
Promote regulatory innovation and improve investor protection mechanisms.Actively develop regulatory technology (RegTech), use blockchain, big data, artificial intelligence and other technologies to improve regulatory efficiency and achieve real-time monitoring, risk warning and intelligent law enforcement.The Hong Kong Securities and Futures Commission may consider establishing a digital asset regulatory sandbox to provide testing space for innovative businesses and support companies in exploring new models while risks are controllable.Introduce a qualified investor system and set suitability requirements for individual investors to participate in digital asset investments; establish a digital asset dispute resolution mechanism and set up a special arbitration and mediation platform to protect the legitimate rights and interests of investors.
Learn from international experience and improve the regulatory framework.With reference to Singapore’s license management system, the EU’s MiCA framework and other international best practices, we will build a regulatory system covering the entire chain of digital asset issuance, trading and custody.In particular, it is necessary to clarify the specific requirements for information disclosure, asset valuation, risk management and control, audit and assurance, etc. for the digital asset treasury business of listed companies, so as to provide clear operational guidance for enterprises.
Relying on the advantages of “one country, two systems” and on the premise of maintaining financial security, we will establish regulatory information sharing and law enforcement cooperation mechanisms with the mainland and other jurisdictions to jointly respond to cross-border regulatory challenges.In particular, we will deepen cooperation in areas such as anti-money laundering, anti-terrorist financing, and market manipulation.
Digital asset treasury business is an inevitable product of the digital economy era. Listed companies cannot avoid it, and regulatory agencies cannot ignore it.For Hong Kong, to properly handle the supervision issues of the digital asset treasury business of listed companies, on the one hand, it must maintain the stability of the financial market, and on the other hand, it must also focus on the strategy of consolidating and enhancing its status as an international financial center.We are standing at a watershed in history. If we go to the left and stick to the old ways, we may miss development opportunities; if we go to the right and blindly advance blindly, we may cause major risks.Only by seeking a balance between innovation and regulation, and staying clear-headed between opportunities and risks, can we make steady progress in this digital financial revolution.
