Hong Kong is set to become the latest Asian hub for cryptocurrency companies, but its regulatory regime will be tight. Hong Kong Monetary Authority Chief Executive Eddie Yue said that while crypto companies are welcome, they should not expect things to be easy.
The comments come as Hong Kong prepares to launch a new licensing regime for virtual-asset service providers on June 1, which will also allow retail investors to trade major crypto assets. However, Beijing’s crypto crackdown means that mainland Chinese traders will not be able to take advantage of the opportunity.
Yue said that Hong Kong’s crypto regulations had been tightened in recent years but had now been lowered to a “reasonable and sustainable level.” Nevertheless, the city will not allow a repeat of any FTX-type event. He added that further guidance for banks on servicing crypto clients is in the works and that the Securities and Futures Commission (SFC) will soon announce the results of its discussions on the scope of retail investor participation.
During the Hong Kong WOW Summit held in March, Neil Tan, Chair of the FinTech Association of Hong Kong expressed his thoughts on the potential of the crypto industry in Hong Kong, stating, “If there is legal and regulated access to [crypto], then I’m confident that participants will come. It’s a ‘build it and they will come’ situation because there are no other options. Actually, the options are decreasing.”
As of June 1, Hong Kong will implement a licensing system for crypto exchanges that will enable retail trading. The Securities and Futures Commission’s (SFC) proposal for Virtual Asset Service Providers (VASPs) suggests allowing retail traders to access licensed crypto platforms, emphasizing that denying access could drive traders towards unregulated overseas platforms.
Tan believes that establishing a legal framework for the crypto industry and focusing on attracting talent and infrastructure providers is critical to achieving Hong Kong’s ambitions as a virtual asset hub. Furthermore, he noted that both the Chinese and Hong Kong governments acknowledge the potential of the region and are taking measures to support inbound talent.
However, critics have commented that obtaining a virtual asset provider license in Hong Kong will be harder than elsewhere due to the stringent requirements. In addition to supply, demand, and liquidity checks, background checks on the issuers and developers will need to be carried out. Market-making will not be permitted, and crypto exchanges will need to be fully insured to cover any risks or potential losses.
The move by Hong Kong to tighten its regulatory regime is likely to have significant repercussions for the crypto sector. It could lead to increased scrutiny of cryptocurrencies and make it harder for companies to operate in the country. However, it could also help to boost investor confidence and provide a more stable environment for the sector to grow.