Hong Kong is the latest jurisdiction to regulate digital assets, as the Chinese special administrative region today introduced rules for funds who invest in cryptocurrencies while also offering to register exchanges.

The rules, announced by Hong Kong’s Securities and Futures Commission, are claimed to bring virtual asset portfolio managers and distributors of virtual asset funds under its regulatory net.

Under the new rules, any Hong Kong investment funds that invest more than 10 percent of their gross portfolios into virtual assets, directly or indirectly, will have to register and obtain a license from the agency to do so. A virtual asset for purposes of the regulation is described as “a digital representation of value” and includes cryptocurrencies, crypto-assets and digital tokens.

Cryptocurrency exchanges are also covered under the new regulations with any exchange being able to opt in to a “Regulatory Sandbox” that allows the SFC to monitor their practices and determine whether they require registration or not.

The proposal doesn’t necessarily mean that cryptocurrency exchanges will be required to be registered, but they will have the option. If they choose to seek registration and obtain it, the exchange will be covered under Hong Kong law that includes consumer protection safeguards, whereas unregistered exchanges are not.

“The measures announced today allow us to regulate the management or distribution of virtual asset funds in one way or another so that investors’ interests would be protected either at the fund management level, at the distribution level, or both,” Ashley Alder, the SFC’s chief executive officer, said in a statement. “We hope to encourage the responsible use of new technologies and also provide investors with more choices and better outcomes.”

While not going quite as far, Hong Kong is following in the footsteps of Japan when it comes regulating crypto markets. The decision to regulate funds that invest in crypto is a somewhat unusual take although in some countries those funds are already covered by existing securities registration and licensing requirements.

Hong Kong is home to a number of leading cryptocurrency exchanges, including Binance, OKEx and BitMEX.

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