New Licensing Regime Proposed for Crypto Exchanges in Hong Kong

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New Licensing Regime Proposed for Crypto Exchanges in Hong Kong
New Licensing Regime Proposed for Crypto Exchanges in Hong Kong

The Securities and Futures Commission (SFC) of Hong Kong is proposing a new licensing regime for centralized cryptocurrency trading platforms operating in the country. The consultation process for the new licensing regime was announced on February 20, and it aims to ensure that robust investor protection measures are in place.

The new licensing regime will come into effect on June 1, 2023.

A New Era for Crypto Regulation in Hong Kong

The proposed licensing regime is based on the existing requirements for licensed securities brokers and automated trading venues, with some modifications to fit the specific needs of the cryptocurrency industry.

The regulatory requirements include measures such as safeguarding assets, anti-money laundering/terrorist financing prevention, and cyber security. "Our proposed requirements for virtual asset trading platforms include robust measures to protect investors, following the 'same business, same risks, same rules' principle," said Julie Leung, SFC Executive Director, in a statement.

The statement also highlighted the recent turmoil in the cryptocurrency ecosystem, which has resulted in the collapse of some industry players, as the primary reason for clear regulatory guidance for the industry with investor protection as the forefront.

The 361-page document provides comprehensive regulatory requirements for licensing, as well as guidance on the implementation of anti-money laundering controls and other obligations for the industry. The Hong Kong SFC also intends to publish and maintain a list of licensed cryptocurrency exchanges and service providers to inform the general public about the registration statuses of various companies.

Retail Access to Licensed Crypto Trading Platforms

One of the most significant proposals in the new licensing regime is the allowance for retail access to licensed cryptocurrency trading platforms. The existing Securities and Futures Regulation (SFO) regime, which has been in place since 2018, initially limited SFO-licensed platforms to professional investor services.

The regulatory requirements are open for consultation until March 31, and companies that intend to continue operating and apply for a license are encouraged to review and revise their existing systems and controls to meet the requirements of the upcoming regime.

Exchanges and service providers that do not intend to apply for a license will have to prepare to close their operations in Hong Kong.

Positive Reactions in the Asia-Pacific Region and the Global Web3 Community

Jupiter Zheng, research director at HashKey Capital, said in a written comment, "Hong Kong's extended support for virtual assets since October is further enhanced with the new licensing regime and consultation." HashKey is one of the two companies in Hong Kong with a permit for the voluntary licensing regime that restricted crypto platforms to clients with portfolios of at least HK$8 million.

"This will help more start-up companies and talents establish businesses in Hong Kong, resulting in a more prosperous local virtual asset / web3 ecosystem," Zheng added. "This news has not only caused widespread positive responses in the Asia-Pacific region, but also in the global Web3 community.

It can be assumed that the Western market and participants will also pay more attention to the development of the Eastern Web3 market this year."

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