Hong Kong’s Securities and Futures Commission (SFC) has announced that it will begin accepting applications for licenses from cryptocurrency trading platforms as of June 1. This move comes after the regulator conducted a consultation on policy recommendations and received public feedback earlier this year, resulting in several amendments to the proposed guidelines.
Under the revised rules, licensed virtual asset providers will be permitted to cater to retail investors, subject to certain conditions. Platform operators must assess the understanding of risks involved by retail customers before providing their services. Additionally, the SFC explicitly prohibits offering crypto “gifts” or incentives designed to encourage retail investors to invest, including airdrops.
The updated guidelines place the responsibility on platform operators to conduct thorough due diligence. They emphasize that meeting the minimum criterion of being listed on two acceptable indices is just the starting point for a crypto asset to be eligible for trading on regulated exchanges.
To ensure financial stability and investor protection, crypto exchanges must maintain a minimum capital of 5,000,000 Hong Kong dollars ($640,000) at all times. Furthermore, they must submit monthly reports to the SFC, including information on available and required liquid capital, a summary of bank loans and advances, credit facilities, and profit and loss analysis.
According to the rules, tokens approved for trading on regulated exchanges must have a 12-month “track record.” This track record ensures that the tokens have undergone sufficient observation and scrutiny before being listed.
The guidelines also provide detailed information on allowing retail investors to utilize trading platforms and the necessary due diligence procedures for token listings. All tokens listed on exchanges must undergo due diligence procedures and smart contract audits by independent assessors, even if already listed on another platform.
While the SFC permits the segregation of client and platform assets, each platform’s compensation arrangement must fully cover client virtual assets. The commission dismissed suggestions of engaging third-party custodians due to the lack of a regulatory regime for virtual asset custodians, which could hinder supervision and enforcement efforts.
Additionally, the SFC acknowledged the significance of derivatives to institutional investors and announced a separate review of their inclusion.
Regarding the implementation of the Financial Action Task Force’s (FATF) travel rule, which mandates the sharing of information on crypto transactions between financial institutions, the SFC stated that if the required information cannot be submitted immediately, it will accept the submission as soon as practicable until January 1, 2024.
The guidelines also clarify anti-money laundering requirements and outline the criteria for imposing fines on platforms that breach these regulations.
With the acceptance of license applications for crypto trading platforms, Hong Kong’s SFC aims to strike a balance between promoting innovation in the cryptocurrency space and safeguarding the interests of retail investors while adhering to international regulatory standards.
