Hong Kong Outlines Upcoming Crypto Licensing Regime
Hong Kong’s Securities and Futures Commission (SFC) is seeking public feedback on its newly proposed licensing regime for cryptocurrency exchanges to come into effect from June 2023.
An important consideration of the public consultation window is whether to allow licensed exchanges to serve retail investors in the country, and what measures should be taken to offer a range of “robust investor protection measures.”
The SFC announced the consultation process on February 20, outlining a new licensing regime for the industry which proposes that all centralized cryptocurrency trading platforms operating in Hong Kong must be licensed with the regulator.
The SFC’s proposed regulatory guidelines are based on existing requirements for licensed securities brokers and automated trading venues, while changes have been made to some of the existing assumptions.
A statement from SFC chief Julia Leung highlighted the “recent turmoil” in the cryptocurrency ecosystem and the collapse of industry players such as FTX as a primary reason for clear regulatory guidelines for the industry with investor protection at the forefront:
“As has been our philosophy since 2018, our proposed requirements for virtual asset trading platforms include robust measures to protect investors, following the ‘same business, same risk, same rules’ principle.”
According to the announcement, any person or business offering cryptocurrency-related services must apply for a license from the SFC. Furthermore, a number of requirements are placed on cryptocurrency exchanges and service providers.
This includes a number of prerequisites, including safekeeping of assets, know-your-client, conflicts of interest, cyber security, accounting and auditing, risk management, anti-money laundering/counter-financing of terrorism and prevention of market abuse.
Related: Hong Kong Watchdog Aims to Restrict Retailers to Liquid Products
Businesses that intend to continue operating and apply 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 must prepare to close down their operations in Hong Kong.
Hong Kong’s SFC also intends to publish and maintain a list of licensed cryptocurrency exchanges and service providers to inform the public about the registration statuses of various firms.
As previously reported by Cointelegraph, Hong Kong-based financial service providers had started asking about licensing requirements following an amendment to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) in December 2022.
