In contrast to current U.S. regulation by enforcement, the Hong Kong Securities and Futures Commission (SFC) has adopted a “regulate to protect” approach to cryptocurrencies, according to a research paper released by Bernstein on Monday.
The SFC released its draft regulations for virtual asset trading platforms on Monday and is now looking for feedback from the public. According to the report, it intends to grant restricted access to licenced exchanges to retail investors, on the grounds that these parties are more trustworthy than offshore and unregulated competitors.
According to the broker, this might be a “major fork in the road” for the cryptocurrency sector and could result in a migration of capital and talent to Asia as a hub for the industry.
The SFC has postponed its decision to permit such products until a later period, therefore trading in cryptocurrency derivatives is still prohibited for the time being. There will be a 12-month transition period for current cryptocurrency exchanges before the new licensing framework is put into effect on June 1. Exchanges that aren’t already running in Hong Kong must comply completely before they can begin trading.
Another authority which seeks to productively regulate the sector is the Hong Kong Monetary Authority (HKMA) which recently stated that it might require businesses seeking stablecoin licenses to stick to their primary line of business and have a locally established organization in Hong Kong. Stablecoins must, according to the HKMA’s current position, be fully backed by high-quality liquid assets (which they have not yet specified) and be redeemable for their corresponding fiat currencies at par. Algorithmic and arbitrage coins are effectively prohibited under this system.