- Hong Kong’s Securities and Futures Commission is mulling over new regulations to enable platforms operating in the region to offer services to retail investors.
- The region has changed its stance since proposing a ban on retail trading in 2021 as it looks to become a global crypto hub.
- Crypto firms must follow rules around token listing, smart contract audits, and limiting trader exposure.
Global crypto regulations are often fragmented, confusing, and unclear, but national jurisdictions are increasingly looking to change this with friendly legal frameworks aimed at enticing businesses.
Hong Kong is one such territory; its Securities and Futures Commission (SFC) has published a proposal for the legislation of crypto trading platforms under a new licensing regime set to take effect on June 1, 2023.
The SFC calls for public comment on whether it should allow licensed platforms to serve retail investors. By clarifying regional operating practices, the legislation aims to attract crypto exchanges and related companies to Hong Kong.
Firmer Regulations for Retail Consumer Protection
Many of the proposed licensing regime’s requirements are geared toward retail consumer protection, obligating platforms to follow a number of regulations and requirements. Under these guidelines, crypto firms must compile client risk profiles and set appropriate limits to ensure that exposure is reasonable. They must also satisfy the SFC’s “eligible large-cap virtual assets” criteria when listing tokens.
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Crypto firms must further perform smart contract audits on tokens to assess security concerns. The listing of tokens that could be defined as securities will also be prohibited under the law. Additionally, exchanges will be required to perform due diligence to ensure that listed tokens are not centralized or controlled by a small number of individuals.
A Change in Stance
The SFC’s decision to allow retail investors access to crypto under this regime indicates a change in stance since the restrictions imposed on the industry in 2021.
Announced on May 21, 2021, the SFC’s tightened controls on virtual asset service providers (VASP) were undertaken to align with anti-money-laundering (AML) guidance from the Financial Action Task Force (FATF). The indications from the initial framework outlined by the SFC provisioned that VASPs could serve only professional traders.
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The latest framework, proposed to come into effect on June 1, 2023, and now available for public comment, balances enforcing AML guidance and empowering crypto platforms to offer services to retail investors in the region.
On the Flipside
- The United Kingdom recently released its own paper to put the country at the forefront of crypto without hardline controls. His Majesty’s Treasury has explicitly stated it plans “to make UK a global crypto asset technology hub.”
Why You Should Care
The lack of crypto regulation has far-reaching implications for the growth and adoption of the technology. American credit rating agency Fitch Ratings explained:
“The lack of clear crypto regulatory standards across jurisdictions increases the risk of fraud and market manipulation amongst crypto players while limiting widespread institutional participation.”
Jurisdictions like Hong Kong and the UK are working to build frameworks that stamp out fraud and other illicit technology uses while still empowering innovation.
