Hong Kong's SFC Balances Crypto Innovation with Investor Protection in DAT Dilemma

Hong Kong's top financial regulator has raised alarms about the risks associated with digital asset treasuries (DATs), warning that companies trading at significant premiums to their underlying holdings could expose investors to unnecessary volatility. The Securities and Futures Commission (SFC) is actively monitoring how firms manage DATs and considering whether new guidelines are necessary, local media reported, citing The Block. SFC Chair Kelvin Wong Tin-yau emphasized the need for investor education on these risks during a Tuesday media briefing, citing U.S. examples where DAT stocks traded far above their asset values.

The SFC's concerns stem from the growing trend of listed companies using cryptocurrencies and other digital assets to manage excess cash—a practice that has gained traction globally but remains unregulated in Hong Kong. Wong noted that the city currently lacks specific rules governing DAT arrangements and indicated the regulator will study whether frameworks are needed. This comes as the Hong Kong Stock Exchange has already rejected proposals from at least five companies seeking to base their business models on DATs, citing rules against large liquid holdings.

Wong's comments highlight the SFC's dual focus on fostering innovation while protecting retail investors. "The reform will focus on whether it can allow more companies to list under the regime while at the same time ensuring fair treatment to investors," he stated, referencing broader efforts to revamp Hong Kong's listing regime to attract tech firms, according to the South China Morning Post. The review aims to build on the 2018 framework that permitted pre-revenue biotech firms and companies with multiple voting rights to list, but Wong stressed that investor safeguards must remain central.

The SFC's caution reflects a global debate over DATs, where critics argue that premiums on such stocks often reflect speculative hype rather than fundamental value. Wong warned that retail investors may not fully grasp the risks, urging them to scrutinize the underlying assets and governance of DAT companies. His remarks align with Hong Kong's broader regulatory approach, which has historically prioritized stability over rapid adoption of crypto-related innovations.