Hong Kong Proposes New Crypto Licensing Regime

  • Hong Kong’s SFC has called for public feedback on its newly proposed licensing regime for cryptocurrency exchanges, which is set to take effect in June 2023.
  • A key point of the public consultation is whether to allow licensed crypto exchanges to offers services to retail investors, and what protection measures should be put in place.
Hong Kong national flag

Hong Kong national flag. Neerav Bhatt/Flickr

Hong Kong’s Securities and Futures Commission (SFC) is seeking public comment on its newly proposed virtual assets trading platform licensing regime, the regulator said in a press release on 20 February.

According to the announcement, the new rules — which are scheduled to take effect in June 2023 — will make it mandatory for all cryptocurrency trading platforms operating in Hong Kong to be licensed with the SFC. One of the key aspects of the public consultation is whether to allow retail investors access to licensed exchanges, and if yes, what investor protection measures should be implemented. The CEO of the SFC, Julia Leung, said in a statement:

“In light of the recent turmoil and the collapse of some leading crypto trading platforms around the world, there is clear consensus among regulators globally for regulation in the virtual asset space to ensure investors are adequately protected and key risks are effectively managed.”

The current Securities and Futures Ordinance (SFO) was established in 2018, and since then licensed trading platforms have only been allowed to provide services to professional investors and not retail customers. The newly proposed licensing regime, however, argues that this rule could be harmful to retail investors as it could lead them to using unregulated platforms overseas.

The SFC noted that the proposed rules were based on existing requirements for licensed security brokers and automated trading platforms, though some modifications were made to better suite the crypto market. The proposed prerequisites for licensing a crypto exchange include Know-Your-Customer (KYC), Anti-Money Laundering (AML), safe custody of assets, cybersecurity, accounting and auditing, and risk management.

The regulatory body also invited businesses that wish to apply for a license to review and revise their existing systems and controls so they meet the requirements of the upcoming regime. The SFC will also publish and maintain a list of licensed crypto exchanges and service providers so the general public can be kept informed.

The government of Hong Kong revealed its intention to provide retail investors with a “suitable degree of access” to crypto assets in October last year. The city had previously proposed that crypto trading should be limited to only professional investors, but received heavy criticism from the public for stifling innovation.

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