Hong Kong’s Securities and Futures Commission (SFC) has announced a public consultation for its newly proposed licensing regime for cryptocurrency exchanges. The new licensing regime will take effect from June 2023 and proposes that all centralized cryptocurrency trading platforms operating in Hong Kong must be licensed with the regulatory body.
One of the key considerations for the public consultation is whether to allow licensed exchanges to serve retail investors in the country and what measures should be implemented to provide a range of “robust investor protection measures.” The SFC is seeking feedback from the public on the proposed regulatory guidelines, which are based on existing requirements for licensed securities brokers and automated trading venues.
The SFC’s proposed requirements for virtual asset trading platforms include robust measures to protect investors, following the ‘same business, same risks, same rules’ principle. SFC CEO Julia Leung highlighted the recent turmoil in the cryptocurrency ecosystem and the collapse of industry players like FTX as a primary reason for clear regulatory guidelines for the industry with investor protection top of mind.
The guidelines include a host of prerequisites, including the safe custody of assets, Know Your Customer (KYC), conflicts of interest, cybersecurity, accounting and auditing, risk management, Anti-Money Laundering/counter-financing of terrorism and prevention of market misconduct. Any person or business providing cryptocurrency-related services must apply for a license from the SFC.
Businesses that intend to continue operating and applying for a license are encouraged to review and revise 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 down their businesses in Hong Kong. The SFC also intends to publish and maintain a list of licensed cryptocurrency exchanges and service providers to inform the general public of the registration statuses of different firms.
Hong Kong-based financial service providers had begun to inquire about licensing requirements after an amendment to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance in December 2022. The SFC’s new licensing regime is expected to provide greater clarity and guidance for cryptocurrency exchanges operating in Hong Kong and promote investor protection.
According to industry experts, the proposed regulatory guidelines will create a more stable and reliable cryptocurrency market in Hong Kong, encouraging more institutional investors to participate. The new licensing regime is expected to help regulate the market, reduce fraud, and improve investor confidence in cryptocurrencies.
Hong Kong is one of the major financial hubs in the world, and the implementation of clear and strict regulatory guidelines will create a positive impact on the global cryptocurrency market. It is important for the SFC to strike a balance between protecting investors and promoting innovation and growth in the cryptocurrency industry.