Hong Kong SFC and AFRC expand financial reporting oversight to licensed crypto firms

Hong Kong regulators are tightening their grip on the digital asset sector. On September 28, 2026, the Securities and Futures Commission (SFC) and the Accounting and Financial Reporting Council (AFRC) signed an expanded Memorandum of Understanding. This agreement subjects licensed virtual asset service providers (VASPs) to the same rigorous financial reporting, audit, and compliance standards that govern traditional securities firms. The non-binding pact establishes formal mechanisms for information sharing, case referrals, and coordinated investigations, aiming to bolster institutional investor confidence.

The new regulatory agreement

• ▪The September 28, 2026 agreement between Hong Kong's SFC and AFRC replaces a previous February 2021 Memorandum of Understanding that covered only traditional financial entities
• ▪The Hong Kong Securities and Futures Commission and the Accounting and Financial Reporting Council signed a new Memorandum of Understanding on September 28, 2026, expanding regulatory cooperation to licensed virtual asset service providers.
• ▪The Memorandum of Understanding between Hong Kong's SFC and AFRC establishes formal mechanisms for information sharing, case referrals, mutual regulatory assistance, and coordinated inspections and investigations between the two agencies
• ▪The updated Memorandum of Understanding is non-binding, operates within existing legal frameworks, and does not alter the statutory functions of either regulator or change Hong Kong law.

Auditing and Financial reporting standards

• ▪The Accounting and Financial Reporting Council will apply the same professional standards and inspection regimes to auditors of virtual asset entities that govern auditors of publicly listed companies.
• ▪Hong Kong licensed virtual asset service providers must appoint qualified auditors and submit financial statements and compliance reports under specific sections of the Securities and Futures Ordinance.
• ▪The expanded regulatory framework is intended to support reliable financial reporting and audit quality across a broader part of Hong Kong's financial system, including open-ended fund companies and authorized funds.
• ▪Auditors of Hong Kong licensed virtual asset service providers can be required to report qualifications, adverse statements, material financial issues, or regulatory failures directly to the Securities and Futures Commission.

Broader digital asset regulations

• ▪The Securities and Futures Commission has expanded its digital asset framework by outlining plans for crypto advisory services and introducing frameworks for virtual asset margin financing and perpetual contracts.
• ▪The Securities and Futures Commission directed licensed virtual asset service providers and internet brokers to adopt phishing-resistant authentication methods, such as passkeys and bound devices, no later than July 8, 2027.

Cooperation on investigations

• ▪The Accounting and Financial Reporting Council must notify and consult the Securities and Futures Commission before exercising specified investigative powers in cases involving a licensed virtual asset service provider.
• ▪The investigation notification and consultation framework under the SFC-AFRC Memorandum of Understanding for licensed virtual asset service providers also extends to certain investigations involving auditors and financial-reporting compliance where regulated entities are involved

Debatable claims

• ▪Hong Kong should subject licensed crypto firms to traditional public-company auditing standards
• ▪Non-binding regulatory agreements are insufficient to police the volatile crypto market
• ▪Joint oversight by the SFC and AFRC creates excessive bureaucratic red tape for crypto firms