The Securities and Futures Commission (SFC) in Hong Kong has published a consultation paper on the necessary requirements for businesses seeking approval to operate cryptocurrency exchanges.
The SFC has proposed new regulatory rules, and public opinion will be sought on these rules until the end of March 2023. The new rules will be implemented from June 1, 2023, and will introduce a licensing system for all centralized exchanges, with a requirement for registration with the SFC. The new rules include a proposal to enable personal investors to participate in cryptocurrency trading.
Hong Kong, which aims to become a hub for cryptocurrencies, has recently accelerated regulatory efforts. In January of this year, it was reported that rules were being developed to allow personal investors to trade cryptocurrencies. Currently, Hong Kong is experimenting with cryptocurrency trading, allowing only professional investors with bank assets of about HKD 8 million (JPY 130 million) to participate.
In the consultation paper, the SFC asks specifically for opinions on whether approved cryptocurrency exchanges should be allowed to provide services to personal investors, and what rules should be put in place to protect investors if such a decision is made. This includes identifying which investors are suited for cryptocurrency trading and which cryptocurrencies should be traded.
While there are concerns about the risks of price volatility and price manipulation, there are also opinions that banning personal investors from trading may result in them using unlicensed overseas exchanges. The SFC pointed out that if an unlicensed exchange goes bankrupt, investors may be unable to withdraw their assets or suffer significant losses, and that a ban on trading may not necessarily protect investors.
Proposed Rules With regard to the suitability of cryptocurrency investors, the SFC advocates that the same rules as currently exist should apply, requiring exchanges to thoroughly verify personal identification and to confirm investors’ financial status, investment experience, and investment objectives. Additionally, exchanges must ensure that investors have sufficient knowledge of cryptocurrency risks and other related matters.
Regarding the tokens listed on exchanges, the SFC proposes that due diligence should be conducted on each cryptocurrency, not only at the time of listing, but also continuously to ensure that it continues to meet the requirements for listing. The following factors should be considered when considering the listing of cryptocurrencies:
Potential for criminal activity
The SFC has called on all applicants, including existing exchanges, to begin verifying whether they meet the conditions specified in the consultation paper. The SFC has also called on companies that do not intend to apply for a license to begin preparing to end their operations in Hong Kong.
Huobi has announced that it will apply for a license in Hong Kong.
Big news for crypto today: @HuobiGlobal has announced that it's applying for a crypto trading license in Hong Kong🇭🇰! This is a major step for the major cryptocurrency exchange and a sign of its continued commitment to operating in a compliant and regulated manner. 🇨🇳
— H.E. Justin Sun 孙宇晨 (@justinsuntron) February 20, 2023
Update on 24th One of the conditions for certification by the Hong Kong SFC is that the cryptocurrency must be “included in at least two indices.” Tier10k has published a list of tokens that are believed to meet this requirement.
“Eligible large-cap virtual assets” included in at least
— db (@tier10k) February 20, 2023
two “acceptable indices” issued by at least two independent index providers rotation in play?
*Just proposal/consultation atm https://t.co/dk0Jflfr6v pic.twitter.com/gf2mcigLB4