- Hong Kong will regulate cryptocurrency exchanges.
- The Securities and Futures Commission developed a set of guidelines for exchanges to operate.
- Custody and cybersecurity are the top concerns among regulators.
Hong Kong’s Securities and Futures Commission (SFC) published a regulatory framework that enables cryptocurrency exchanges to be regulated. With the new set of rules, the nation is making a significant step towards the adoption of blockchain technology.
Licensing Cryptocurrency Exchanges
During the Hong Kong Fintech Week, the world’s first cross-border financial technology event, SFC CEO Ashley Alder announced the creation of new guidelines for licensing cryptocurrency exchanges.
The 61-page regulatory sandbox covers custody, know-your-customer rules and the storage of crypto assets, among other issues. According to the head of the SFC, cybersecurity and custody are the top concerns among regulators in a market that appears to be “vulnerable to manipulation.”
“Our new regulatory framework covers all of the key investor protection concerns. These include the safe custody of assets, know-your-client requirements, anti-money laundering, and market manipulation. And, it also zeros in on many of the new concepts we are getting used to, such as hot and cold wallets, forks, airdrops and the like. We will also set out the criteria for platforms to decide on the inclusion of a new virtual asset for trading.”
The SFC emphasized that it has no jurisdiction to license or supervise platforms that trade non-security digital assets. Thus, assets that are not considered securities or futures contracts do fall within the SFC’s new regulatory remit.
Critical Aspects of the Regulatory Framework
Under the new standards, cryptocurrency exchanges must provide their services to professional investors. The platforms must also request written approval before integrating new products or services.