Big News for Crypto Traders! Hong Kong Unveils Groundbreaking Regulations for Trading Platforms
On Monday, the Securities and Futures Commission (SFC) of Hong Kong released its proposed regulations for virtual asset trading platforms and invited public input. In addition to setting up a licensing system for crypto service providers, the regulator is soliciting feedback on whether to permit licensed platforms to serve retail investors and what investor protection measures should be implemented, according to an official statement.
All cryptocurrency trading platforms intending to apply for a license, including existing platforms, should “review and revise their systems and controls to prepare for the new regime,” according to the notice. The regulator proposed certain requirements, such as assessing clients’ risk profiles and setting limits to ensure their exposure is “reasonable,” under the new framework.
Operators will also have to perform due diligence on tokens and keep an eye on them. They must verify the regulatory status of the asset in each jurisdiction in which the operator provides trading services, as well as check the operator’s liquidity and whether its holdings are concentrated or controlled by a small number of individuals or entities. The proposed measures also recommend that operators avoid offering virtual assets that would infringe on Hong Kong’s Securities and Futures Ordinance’s definition of “securities.”
The SFC also proposes that operators create a compensation mechanism, which must be approved, to cover risks instead of having a hard limit for assets held in cold storage. Each licensed operator may need to establish a token admission and review committee to assess tokens up for trade and set obligations for issuers to inform operators about any hard forks, airdrops, or regulatory action.
The regulator is willing to consider business models and demand for derivatives and is willing to conduct a separate review to create related policies, according to the SFC. In January 2022, the SFC authorized retail investors to access some regulated crypto-related derivative products traded on traditional exchanges, but it appeared reluctant to allow retail investors access to crypto under its virtual asset licensing scheme for much of last year. At Hong Kong FinTech Week in November last year, the regulator indicated that it was willing to change its stance.
