Hong Kong Granted a New Cryptocurrency Licensing Regime
2023.02.20 11:06
Hong Kong Granted a New Cryptocurrency Licensing Regime
By Tiffany Smith
Budrigannews.com – The Securities and Futures Commission (SFC) in Hong Kong is looking for public feedback on a new licensing scheme it has proposed for cryptocurrency exchanges that will go into effect in June 2023.
The question of whether licensed exchanges should be allowed to serve retail investors in the country and what steps should be taken to provide a variety of “robust investor protection measures” are major considerations during the public consultation window.
On February 20, the SFC made an announcement about the consultation process and outlined a new licensing regime for the industry. It proposes that all centralized cryptocurrency trading platforms in Hong Kong must have a license from the regulatory body.
The SFC’s proposed regulatory guidelines are based on the requirements for automated trading venues and licensed securities brokers. However, some of the requirements have been modified.
The “recent turmoil” in the cryptocurrency ecosystem and the collapse of industry players like FTX, according to a statement from SFC CEO Julia Leung, are the primary reasons for clear regulatory guidelines for the industry that prioritize investor protection:
“In accordance with the “same business, same risks, same rules” principle, our proposed requirements for virtual asset trading platforms include robust measures to protect investors, as has been our philosophy since 2018.”
The announcement states that anyone offering services related to cryptocurrencies must apply for a license from the SFC. In addition, a number of requirements for cryptocurrency exchanges and service providers are outlined.
Know Your Customer, asset safety, cybersecurity, accounting and auditing, risk management, anti-money laundering/counterfinancing of terrorism, and market misconduct prevention are just a few of the prerequisites.
In order to meet the requirements of the forthcoming regime, existing systems and controls should be reviewed and revised by businesses that intend to continue operating and applying for a license. If an exchange or service provider does not intend to apply for a license, they will need to prepare to shut down in Hong Kong.
In addition, the SFC of Hong Kong intends to provide the general public with information regarding the registration statuses of various businesses by publishing and maintaining a list of licensed cryptocurrency exchanges and service providers.
The 361-page document is comprehensive and outlines the most important proposed regulatory licensing requirements, as well as guidelines for putting AML controls into place and a slew of other responsibilities for the industry.
A section about the idea to let retail customers use licensed cryptocurrency trading platforms is perhaps the most important. Since 2018, the Securities and Futures Ordinance (SFO) regime has been in place. At first, SFO-licensed platforms were only allowed to serve professional investors.
According to the documentation, feedback from the general public has highlighted the belief that denying retail access to cryptocurrency markets could harm investors because people might be compelled to trade on online platforms that are not regulated in other countries.
Only two trading platforms are currently licensed by the SFO, according to the SFC. On the other hand, the SFC has implemented cryptocurrency-focused policies that have made it easier for retail investors to gradually transition from limited cryptocurrency asset exposure.
A regime for cryptocurrency futures exchange-traded funds was approved by the SFC in October 2022, providing retail investors with indirect access to these markets through regulated products.
Under the supervision of the SFC, a number of licensed brokers and fund managers have begun providing investors with services related to cryptocurrencies. This has also played a significant role in the SFC’s decision to provide licensed platforms with access to cryptocurrencies for all types of investors starting in June 2023.
After an amendment to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance in December 2022, Hong Kong-based financial service providers began to inquire about licensing requirements, as previously reported by Cointelegraph.
