Hong Kong Tightens Financial Rules for Licensed Crypto Firms

Hong Kong’s financial watchdogs, the Securities and Futures Commission (SFC) and the Accounting and Financial Reporting Council (AFRC), have signed a new Memorandum of Understanding (MoU) to strengthen financial reporting and audit checks for licensed crypto firms.

The move will help regulators review financial records, share information, and spot risks early before they become bigger problems.

New Agreement Brings Crypto Firms Under Closer Checks

The newly active MoU directly replaces the 2021 agreement and brings licensed crypto firms under Hong Kong’s regular financial checks.

The rules mandate that crypto firms holding an SFC license must subject their corporate balance sheets, proof-of-reserves, and client-asset custody logs to meticulous third-party assurance work. 

It also covers the audit and assurance work their auditors carry out.

Meanwhile, the tighter rules could increase compliance costs for smaller crypto firms because they may need stronger accounting systems and more audit support.

At the same time, closer checks could give investors more information about the financial position of licensed firms.

Regulators Can Now Share Information and Investigate Together

The MoU goes beyond basic guidance and sets up a stronger system for joint supervision. The SFC and AFRC will work more closely to monitor licensed crypto firms and respond to possible risks.

Under the agreement, the two regulators can share information in real time, refer cases directly, provide technical support and carry out joint on-site inspections. 

This allows them to act faster when they find issues at a crypto firm.

AFRC CEO Janey Lai said the stronger information-sharing system will help regulators “identify emerging risks earlier.” 

By requiring crypto firms to keep clear and accurate financial records, regulators aim to spot problems earlier and reduce the risk of major exchange failures. If a firm reports false figures, hides wallet balances or uses unverified offshore funds, the SFC and AFRC can launch a joint investigation.

SFC Chairman Kelvin Wong said the wider cooperation will provide “more comprehensive oversight” across Hong Kong’s financial sector.

Crypto Firms Face Higher Reporting Standards

For licensed crypto firms, the changes mean financial records and audit work will receive more attention.

Auditors will also come under the overall cooperation framework. This gives regulators a clearer way to examine reporting issues and share information when concerns arise.

The move comes as Hong Kong continues to expand its digital asset rules. The SFC has already introduced measures covering areas such as client asset protection, staking, and virtual asset trading platforms