The Hong Kong Securities and Futures Commission (SFC), has opened a public consultation window on its new licensing regime for cryptocurrency trading platforms. The consultation will end on June 2023.
Key questions in the consultation include if licensed exchanges should be allowed to serve retail investors in Hong Kong and what measures should be taken to ensure clients receive a wide range of services with robust investor protection.
The SFC published the consultation on Feb. 20, proposing that all centralized crypto trading platforms operating in Hong Kong must be licensed by the regulatory body. The regulatory guidelines are based on the existing requirements for licensed securities brokers and automated trading venues, with some modifications.
Julia Leung, SFC CEO, outlined the importance of clear regulatory guidelines for the industry, especially in light of recent collapses in the cryptocurrency ecosystem, such as FTX:
“As we have held since 2018, our proposed requirements for virtual asset trading platforms include strong measures to protect investors, following the ‘same business, same risks, same rules’ approach.”
The announcement stated that any person or business providing crypto-related services must apply for a license from the SFC, with a number of prerequisites, such as safe asset custody, KYC, Conflict of Interest, cybersecurity, auditing and accounting, risk management, AML, CFT and preventing market misconduct.
Related: Hong Kong Watchdog seeks to limit retail traders’ access to liquid products
The SFC encourages businesses to apply for a license and review and modify their systems and controls to meet the requirements. Failure to meet the guidelines and not apply for a license may result in criminal sanctions and civil liabilities.
Hong Kong is pushing forward with a new crypto licensing regime that will make it easier for both retail and professional investors to access cryptocurrencies. The Securities and Futures Commission (SFC) recently published a 361-page document outlining the regulatory requirements for licensing, as well as AML and other obligations for the sector.
The document states that feedback from investors suggested that denying access to retail customers could result in potential harm as they might be forced to trade on unregulated platforms in other countries. As a result, the SFC is proposing to allow access to licensed cryptocurrency trading platforms for all types of investors from June 2023.
While only two trading platforms are currently licensed under the SFO, the SFC has implemented policies that have enabled limited access to cryptocurrency asset exposure for retail investors. In October 2022, the SFC approved a system for ETFs to provide indirect access to these markets. Moreover, a number of licensed brokers and fund managers have begun offering cryptocurrency-related services to investors under the SFC’s supervision.
Furthermore, the SFC is planning to publish and maintain a list of licensed cryptocurrency exchanges and service providers, to inform the public of the registration statuses of different firms. Those that don’t intend to apply to a license for their services will need to be prepared to shut down their business.
