Hong Kong opens public consultation on new crypto trading regime
(Kitco News) - Hong Kong is preparing legislation to allow the trading of digital assets, including by individual investors. On Monday, the Hong Kong Special Administrative Region of the People’s Republic of China (HKSAR) announced that the Securities and Futures Commission (SFC) has launched a public consultation on the “requirements for operators of virtual asset trading platforms.”
The announcement confirms the reports that circulated late last week that HKSAR was preparing crypto legislation to be enacted this year. Under the new licensing regime scheduled to take effect on June 1, 2023, “all centralised virtual asset trading platforms carrying on business in Hong Kong or actively marketing to Hong Kong investors will need to be licensed by the SFC.”
The SFC said that the proposed regulatory requirements for virtual asset trading platforms are based on those of the existing Securities and Futures Ordinance regime “and are comparable to those for licensed securities brokers and automated trading venues.” The SFC is also proposing modifications to some requirements of the existing regime.
As part of the consultation, the SFC wants particular input on “whether to allow licensed platform operators to serve retail investors, and if so, the measures to be implemented,” they wrote.
“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 risks, same rules’ principle,” said Julia Leung, Chief Executive Officer of the SFC. “In light of the recent turmoil and the collapse of some leading crypto trading platforms around the world, there is clear consensus among regulators globally for regulation in the virtual asset space to ensure investors are adequately protected and key risks are effectively managed.”
The SFC said that operators of new and pre-existing virtual asset trading platforms who plan to apply for a license “should begin to review and revise their systems and controls to prepare for the new regime,” while those who do not plan to apply for a license “should start preparing for an orderly closure of their business in Hong Kong.”
The SFC added that they will publish lists on their website to “inform the public of the different regulatory statuses” of the various trading platforms, and they intend to continue working with the Investor and Financial Education Council to educate the Hong Kong public about virtual assets. Parties interested in sharing their views and expertise on the regulator’s requirements have until March 31, 2023.
Shortly after the announcement, Justin Sun, who recently assumed control of Huobi, the largest crypto platform in China, tweeted that his exchange intends to apply for a license.
Big news for crypto today: @HuobiGlobal has announced that it's applying for a crypto trading license in Hong Kong????! This is a major step for the major cryptocurrency exchange and a sign of its continued commitment to operating in a compliant and regulated manner. ????— H.E. Justin Sun ??? (@justinsuntron) February 20, 2023
Sun added that Huobi also plans to launch a new exchange called Huobi Hong Kong which will be “fully compliant with local regulations and offer a range of trading pairs and services to customers” and will focus on providing trading services for “institutional investors and high net worth individuals” in Hong Kong. “It positions the exchange as a trusted and secure platform for larger investors in Asia who are looking to enter the crypto market,” he said.
On Feb. 15, Twitter user NoodleofBinance first tweeted the news that Hong Kong was preparing to legalize crypto trading for institutions and its citizens. “Expect a huge influx of big money from the East,” NoodleofBinance said. Under current rules, crypto trading in Hong Kong is limited to professional investors, which are defined as individuals with a portfolio of at least HK$8 million (US$1.02 million).
The crypto proponent also wrote “Asian currency based stablecoin coming out of HK will be a certainty as well,” and that the “US dollar stablecoin will no longer be the only [token] in town.” They envision a future where investors can “trade multiple stablecoin currency pairs and there will be tons of arbitrage opportunities,” similar to what was seen in the 2017 bull market when the BTC/CNY pair enabled people to make “fortunes arbitraging Yuan pair and US dollar pairs.”
Coinbase CEO Brian Armstrong replied to the NoodleofBinance tweets with a warning that the U.S. risks falling behind in the blockchain race due to its lack of clear regulations and inability to pass meaningful legislation.
“America risks losing its status as a financial hub long term, with no clear regs on crypto, and a hostile environment from regulators,” Armstrong said. “Congress should act soon to pass clear legislation. Crypto is open to everyone in the world and others are leading. The EU, the UK, and now HK.”
On Feb. 13, DBS Group, the largest bank in Singapore, also revealed that it is planning to apply for a license that would allow it to offer crypto services to Hong Kong residents.
The possibility of Hong Kong citizens gaining access to trading crypto has been a hot topic of discussion and speculation for months, ever since the government first announced that it was exploring the topic in October.