The Hong Kong Securities and Futures Commission (SFC) is seeking public comment on its newly proposed licensing regime for cryptocurrency exchanges which will take effect from June 2023.
A key consideration of the public consultation window is whether to allow licensed exchanges to serve retail investors in the country and what measures need to be put in place to provide a range of "robust investor protection measures."
CFS Announced the February 20 consultation process, which outlines a new licensing regime for the industry that proposes that all centralized cryptocurrency trading platforms operating in Hong Kong must obtain a license from the regulator.
The SFC's proposed regulatory guidelines are based on existing requirements for licensed broker-dealers and automated trading venues, while modifications have been made to some of the existing prerequisites.
A statement from SFC CEO Julia Leung highlighted the "recent turmoil" in the cryptocurrency ecosystem and the collapse of industry players like FTX as the main reason to establish clear regulatory guidelines for the industry with investor protection as a priority:
โAs has been our philosophy since 2018, our proposed requirements for virtual asset trading platforms include robust measures to protect investors, following the principle of 'same business, same risks, same rules.'โ
According to the announcement, any person or company that provides cryptocurrency-related services must apply for a license from the SFC. In addition, a series of requirements are established for cryptocurrency exchanges and service providers.
This includes a number of prerequisites, including safe custody of assets, Know Your Customer, conflicts of interest, cybersecurity, accounting and auditing, risk management, money laundering/counterfinancing of terrorism prevention, and prevention of misconduct in the market.
Related: Hong Kong watchdog aims to restrict retailers to liquid products
Businesses intending 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 who do not intend to apply for a license will need to prepare to go out of business in Hong Kong.
The Hong Kong 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 companies.
The 361-page document is comprehensive, outlining the key proposed regulatory requirements for licensing, as well as guidelines for implementing AML controls and a host of other obligations for the industry.
Perhaps most pertinent is a section related to the proposal to allow retail access to licensed cryptocurrency trading platforms. The existing Securities and Futures Ordinance (SFO) regime has been in place since 2018, which initially restricted SFO-licensed platforms to serving professional investors.
The documentation notes that public comments have highlighted the belief that denying retail access to cryptocurrency markets may result in harm to investors, as individuals may be forced to trade on unregulated foreign platforms that are you can access online.
According to the SFC, currently only two trading platforms are licensed by the SFO, while the SFC has introduced crypto-focused policies that have facilitated gradual retail investment for limited exposure to cryptocurrency assets.
In October 2022The SFC authorized a regime for cryptocurrency futures exchange-traded funds, giving retail investors indirect access to these markets through regulated products.
Meanwhile, a number of licensed brokers and fund managers have began to offer cryptocurrency-related services for investors under the supervision of the SFC. This has been another key factor in the SFC's move to allow all types of investors to access crypto through licensed platforms starting in June 2023.
As Cointelegraph previously reported, Hong Kong-based financial service providers had began to ask on licensing requirements following an amendment to the Anti-Money Laundering and Terrorist Financing Ordinance in December 2022.
Post navigation
