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Hong Kong is stepping up its efforts to formally regulate cryptocurrency exchanges in the city. The Securities and Futures Commission (SFC) just released a newly drafted regulatory framework, which allows the securities watchdog to issue licenses to crypto trading platforms. Could this be a game-changer for the crypto industry? As a leading global financial hub, what does the new regime mean to the city?
A Comprehensive Framework
A year ago, the SFC announced a regulatory sandbox to provide a confined environment for fintech companies to advance regulatory innovation. After a year, at the latest HK FinTech Week, Ashley Alder, head of the SFC announced that the city’s securities watchdog has now established a new comprehensive set of regulations for cryptocurrency exchanges in Hong Kong.
Cryptocurrencies and virtual assets traded on an SFC-licensed platform will not be subject to the same kind of regulation that applies to traditional offerings of securities or investment funds.
Alder said the rules are tailor-made for the crypto industry, covering all the key investor protection concerns including the safe custody of assets, KYC requirements, anti-money laundering, and market manipulation. Concepts that don’t exist in traditional financial markets like hot and cold wallets, forks, airdrops are also included.
Additionally, all licensed platforms must have insurance covering the risk of virtual assets being lost or stolen.
He stressed that “Virtual assets have been moving further into conventional financial markets”, and highlighted stablecoins in particular, saying that some projects are “capable of being adopted extremely rapidly on a global scale” which has led to “serious concerns among politicians and central bankers and financial regulators.”
Exchange Licensing: An Opt-in Solution
The new regulatory framework allows the SFC to grant a license to exchange operators that wish to opt-in to regulation.