Hong Kong Reverses Anti-Crypto Stance, Adds Investor Tests

Hong Kong’s financial regulator has updated its crypto policies, allowing retail investors to engage in spot-crypto and ETFs, with conditions.

A girl from Hong Kong winking and showing love to digital coins.
Created by Kornelija Poderskytė from DailyCoin
  • Hong Kong‘s SFC updates crypto regulations for retail investors.
  • New rules require investors to pass a one-off test and have sufficient net worth.
  • The change follows 18 months of hostility toward crypto in Hong Kong.

After a strong regulatory crackdown, Hong Kong has somewhat opened up on crypto retail inventors. The city’s financial regulator, the Securities and Futures Commission (SFC), has updated its policies to allow a broader range of clients, including retail investors, to engage in spot-crypto and ETF investing. However, there are conditions attached to this move. 

Hong Kong’s Regulatory Shift and Its Implications

On Friday, October 20, the SFC announced that intermediaries could now offer services to a wider range of clients, including retail investors. This change comes amid growing interest in spot bitcoin ETFs and follows recent actions against unlicensed crypto exchange JPEX

However, the regulator has set conditions to mitigate risks. Investors must pass a one-off test to prove their investing knowledge and demonstrate sufficient net worth. Intermediaries are also required to provide clients with risk disclosure statements. 

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The SFC’s move is part of Hong Kong’s ambition to become a virtual asset hub. In June, the city implemented a new regulatory regime and started accepting applications for crypto trading platform licenses. The first set of licenses was granted in August, marking a significant shift after 18 months of hostility toward crypto.

The Evolving Regulatory Landscape for Crypto in Hong Kong

Hong Kong has been undergoing significant changes in its approach to cryptocurrency regulation. As of June 1, 2023, the city’s securities regulator introduced a crypto licensing regime that includes measures to protect retail investors.

This move followed a year of turbulence in the crypto sector, including the collapse of the crypto exchange FTX last year. The new regulations require all trading platforms and exchanges to apply for a license, and non-compliance could result in fines and jail terms. The regulator also mandates client checks to prevent retail traders from China, where crypto trading is banned, from participating. 

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The Hong Kong government has also announced plans to close legal loopholes that have allowed most crypto exchanges to operate without restrictions. The new regulations will make licensing mandatory, restricting crypto trading to professional investors. This shift in policy is part of a broader trend of tightening regulations on virtual asset exchanges. It is expected to have a significant impact on the crypto landscape in Hong Kong. 

On the Flipside

  • While the new regulations open doors for retail investors, they also raise concerns. For instance, it limits market participation to only those who can pass the test and meet the net worth requirements. 
  • The new policies require strong KYC measures, leading to potential privacy concerns.  

Why This Matters

For crypto traders, Hong Kong’s policy shift is a double-edged sword. On one hand, it legitimizes the crypto market, attracting more institutional and retail investors. Conversely, the added layers of tests and disclosures could deter potential investors, affecting market liquidity and growth.

Read more about the JPEX crypto scandal: 
JPEX Scandal Rattles Hong Kong’s Crypto Confidence

Read more about crypto firms partnering with traditional tech giants: 
MultiversX Partners with Google Cloud to Boost Web3 Growth

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

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David Marsanic

David Marsanic is a journalist for DailyCoin who covers the intersection of crypto, traditional finance, and government. He focuses on institutionalized crypto entities like major cryptocurrency exchanges and Solana, breaking down complex topics into easy-to-understand writing. David's prior experience as a business journalist at various crypto and traditional news sites has enabled him to maintain a critical approach to news while adhering to high journalistic integrity standards.