by Rey Simmons 
Hong Kong is set to introduce a new licensing regime for cryptocurrency exchanges later this year. The regulations, proposed by the Securities and Futures Commission (SFC), will ensure that all centralized cryptocurrency trading platforms operating in Hong Kong must be licensed with the regulatory body.
The proposed regulations are based on existing requirements for licensed securities brokers and automated trading venues, with some modifications made to the existing prerequisites. One of the key considerations of the public consultation window is whether to allow licensed exchanges to serve retail investors in Hong Kong and to implement necessary measures to provide “robust investor protection measures”.
The SFC has highlighted the “recent turmoil” in the cryptocurrency ecosystem and the collapse of industry players like FTX as a primary reason for clear regulatory guidelines for the industry with investor protection top of mind. A statement from SFC CEO Julia Leung outlined that the licensing regime seeks to provide “regulatory clarity” so companies can operate with greater certainty, while also protecting users and customers who engage in cryptocurrency activities in Hong Kong.
The proposed licensing regime is expected to include measures to ensure that companies comply with Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) regulations, as well as possess sufficient capital to cover their operations. Additionally, companies must implement a robust cybersecurity system and appropriate risk management systems. They must also ensure ongoing monitoring of the activities of users and customers.
The precise rules and regulations that must be adhered to will be finalized and released soon. It is likely that the new regime will be applicable to all types of VASPs, including those providing services such as cryptocurrency trading, exchange, and transfer services, regardless of where their headquarters are located.
Overall, the new regime is expected to provide investors with greater protection and assurance when engaging in cryptocurrency activities, while also providing guidance and clarity to the sector. The framework will also promote innovation in the blockchain technology sector and create a level playing field for all VASPs.
Key Points:
- The Hong Kong Securities and Futures Commission (SFC) has proposed a licensing regime for virtual asset service providers (VASPs) set to take effect in June 2023.
- The licensing regime must ensure compliance with Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) regulations, and companies must have sufficient capital to cover their operations.
- Robust cybersecurity systems, appropriate risk management systems, and ongoing monitoring of user and customer activities must be implemented.
- The new licensing regime will create a level playing field for all VASPs, ensure investor protection, and promote innovation in the blockchain technology sector.
