The Securities and Futures Commission (SFC) of Hong Kong has initiated a public consultation regarding the regulatory standards applicable to crypto asset trading platforms, according to a February 20th press release.
Starting from June 1st, 2023, all centralized virtual asset trading platforms based in Hong Kong or promoting their services to Hong Kong investors will need to obtain a license from the SFC under the proposed licensing system. It is a distinctive approach toward the regulation of virtual assets in Hong Kong.
SFC has proposed a new set of rules for crypto asset trading platforms. These rules draw inspiration from the existing regulatory requirements of the Securities and Futures Ordinance and are in line with those of licensed securities brokers and automated trading venues. In a bid to enhance the existing framework, the SFC has also suggested making some modifications to the requirements.
As part of the consultation process, the SFC invites opinions on the potential of licensed platform operators catering to retail investors. In such a scenario, the SFC is seeking inputs on the additional measures that would need to be implemented to safeguard the interests of retail investors.
Julia Leung, the SFC’s Chief Executive Officer, said:
Our proposed requirements for virtual asset trading platforms include robust measures to protect investors, following the ‘same business, same risks, same rules’ principle.
She noted that given the recent instability and the failure of several prominent cryptocurrency trading platforms worldwide, regulators across the globe agree on the need to regulate the virtual asset arena. The aim is to safeguard investors and effectively manage critical risks.
Crypto Trading Platforms & New Licensing Regime
Per the press release, crypto trading platform operators, including those already established, are advised to assess and modify their systems and controls in preparation for the new regulatory regime if they apply for a license. Alternatively, those not intending to apply for a license should make arrangements for a methodical closure of their business in Hong Kong.
To keep the public informed about the various regulatory statuses of VA trading platforms, the SFC will publish lists on its website and work with the Investor and Financial Education Council to enhance investor education in Hong Kong.
The SFC has invited interested parties to share their feedback by March 31st, 2023, via the SFC website, email, post, or fax. This move by the SFC is in line with the global trend of increased regulatory oversight of the virtual asset space.
The SFC has identified the risks associated with crypto assets activities, including investor protection concerns, since 2018. The proposed licensing regime is aimed at ensuring that investors are adequately protected, and key risks are effectively managed.
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