Chicago-headquartered law firm Mayer Brown issued an update that called for regulatory considerations of an assessment regime for crypto investing based on knowledge rather than just net worth.

Hong Kong is exploring loosened crypto access to retail users and Singapore is proposing tighter rules, particularly with regard to leveraged trading. Yet, while the two hubs are taking different regulatory paths in the digital asset class, they still take the same approach when classifying investors, namely as either retail or professional investors (PI), which is significantly defined by net worth.

«Instead of drawing the line at PI versus retail investors which has been the norm in the financial regulations of both jurisdictions, it may be time to consider allowing retail investor access based on an assessment of the individual's knowledge of the risks of trading digital assets,» said a legal note authored by Mayer Brown's Alan Linning, partner in the litigation and dispute resolution practice and Wei Na Sim, counsel in the same practice. 

Wealth Does Not Equal Literacy

In fact, the note also underlines that even those that are already considered PIs may not necessarily be suitable for crypto investing.

«After all, the size of an individual's net worth may not be indicative of an individual's financial literacy,» the note said. «In an interesting development, the MAS' latest digital payment token (DPT) consultation paper mentions this option and seeks the industry’s engagement to develop a common assessment template.»

Upcoming Legislation

In Hong Kong, a new licensing regime for virtual asset service providers (VASP) is expected to take effect in 2023, with ongoing consultations about expanded access to retail users. In Singapore, two consultation papers have been issued for DPT services and stablecoin-related activities.

«Finally, while there has been a lot of hype over the recent 'pro-crypto' comments by Hong Kong authorities and the 'anti-crypto' comments by Singapore authorities, this is ultimately still a developing area,» the note added. «It remains to be seen whether and to what extent the position between the two jurisdictions will diverge in this area in upcoming legislation.»