Hong Kong regulators expand financial reporting oversight to crypto firms

Hong Kong just put its crypto industry on notice: the same financial reporting standards that apply to traditional securities firms now extend to licensed virtual asset service providers. The city’s Securities and Futures Commission (SFC) and the Accounting and Financial Reporting Council (AFRC) signed a new Memorandum of Understanding on September 28 that formalizes audit, compliance, and financial reporting cooperation for the crypto sector.

The agreement replaces a previous MoU from February 2021, which covered only traditional financial entities. By folding licensed VASPs into the framework, Hong Kong’s regulators are signaling that crypto firms operating under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) will face the same level of scrutiny that stock brokers and fund managers have dealt with for years.

What the new agreement actually covers

The updated MoU establishes formal arrangements across three critical regulatory functions: information sharing between the SFC and AFRC, case referrals when one body identifies issues that fall under the other’s jurisdiction, and coordinated enforcement activities when investigations span both agencies’ territories.

For crypto firms, the practical impact is straightforward. Licensed VASPs must now appoint auditors and submit financial reports under specific sections of the Securities and Futures Ordinance.

The AFRC, which oversees audit quality across Hong Kong’s financial markets, will bring its expertise in financial oversight directly to bear on virtual asset entities. That means the auditors working with crypto firms will face the same professional standards and inspection regimes that govern auditors of publicly listed companies.

One important caveat: the MoU is technically non-binding. It operates within existing legal frameworks and doesn’t alter the statutory functions of either regulator.

Why Hong Kong is doing this now

SFC Chairman Dr. Kelvin Wong framed the agreement as part of a wider push to reinforce market confidence as Hong Kong evolves into what he described as a leading international financial centre.

The previous MoU from 2021 was drafted before Hong Kong had a formal licensing framework for virtual asset platforms. The updated agreement reflects the reality that crypto firms are now formally licensed entities with obligations that mirror those of traditional financial institutions.

What this means for the market

The most immediate consequence for licensed VASPs is higher compliance costs. Appointing qualified auditors, maintaining financial reporting standards that satisfy both the SFC and AFRC, and building internal systems to facilitate information sharing with regulators all cost money.

For institutional investors, the enhanced framework addresses a persistent complaint from traditional finance firms considering crypto allocations: the lack of reliable, audited financial information about the platforms they’d be trusting with capital. Having the AFRC involved in overseeing audit quality for crypto firms directly addresses that concern.

The coordinated enforcement dimension is also worth noting. Information sharing and case referral mechanisms between the SFC and AFRC mean that red flags identified during a financial audit could trigger a securities enforcement investigation, and vice versa.