Hong Kong Unveils Crypto Rulebook: Will Allow Retail Trading
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Hong Kong Unveils Crypto Rulebook: Will Allow Retail Trading

Hong Kong has pivoted toward a friendlier regulatory regime in order to attract more crypto companies.
Neither the author, Ruholamin Haqshanas, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

Hong Kong’s securities watchdog has concluded its consultation paper on the proposed regulatory regime for crypto trading platforms. Under its new rulebook, the city-state will allow retail investors to trade certain cryptocurrencies using licensed platforms starting next month. 

Hong Kong Releases Conclusions of its Consultation Paper

Hong Kong’s Securities and Futures Commission (SFC) published a consultation paper on its proposed regulatory regime for crypto trading platforms in January. The new rules are set to take effect starting in June and require all crypto platforms to be licensed by the SFC.

Furthermore, the new regulatory regime proposed allowing retail investors in the city to trade specific “large-cap tokens” on licensed exchanges, given that safeguards such as knowledge tests, risk profiles, and reasonable exposure limits are put in place.

On Tuesday, the watchdog detailed the conclusions of the consultation paper. The SFC said it received 152 written submissions from industry and professional associations, professional and consultancy firms, market participants, licensed corporations, individuals, and other stakeholders. 

“Respondents generally welcomed the proposed requirements, while a number of them sought clarifications. Taking into consideration the wide-ranging comments and suggestions provided by respondents, the SFC has modified or clarified some of the proposed requirements.”

Hong Kong to Allow Retail Investors Trade Cryptocurrencies

The SFC said that a “significant majority” of respondents agreed to the proposal to allow retail investors to trade certain crypto assets. The coins should be included in at least two acceptable, investible indexes from independent providers, one with experience in the traditional financial sector.

The agency also stuck with a plan to provide licenses to crypto exchanges. However, it noted that the licensed platforms should “comply with a range of robust investor protection measures covering onboarding, governance, disclosure and token due diligence and admission, before providing trading services to retail investors.”

In addition, the regulations require crypto exchanges always to have a minimum capital of 5 million Hong Kong dollars ($640,00) and submit a report at the end of each month containing the platform’s liquid capital availability, bank loans, advances, credit facilities, and a profit and loss analysis to the SFC. 

“Operators of virtual asset trading platforms who are prepared to comply with the SFC’s standards are welcome to apply for a license. Those who do not plan to do so should proceed to an orderly closure of their business in Hong Kong.”

It is worth noting that the guidelines prohibit crypto “gifts” designed to incentivize retail investments. This clause will likely include airdrops, a marketing strategy used by blockchain-based projects that involve the distribution of free tokens to investors.

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Hong Kong Pushes for Web3 Amid Global Crackdown 

Hong Kong’s new regulatory regime comes as the city pushes for Web3 and blockchain to position itself as a hub for digital innovation in Asia. In contrast, regulators in other parts of the world have launched an aggressive crackdown on the crypto industry. 

Recently, Malaysia ordered Huobi Global to stop all activity after failing to register to operate in the country. According to an official statement, the company has been directed to disable its website and mobile applications on Apple Store and Google Play.

In another instance, the Philippines Securities and Exchange Commission has warned investors that Gemini is operating its newly launched derivatives exchange without regulatory authorization in the country. 

Similarly, regulators in the US, specifically the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), have been cracking down on crypto since the collapse of FTX. The agencies have taken enforcement actions against BittrexNexo, Binance, Coinbase, and Kraken, among others. 

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