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Hong Kong Outlines Plans to Allow Retail Crypto Trading

  • The new Hong Kong crypto regime will take effect on June 1, 2023.
  • The SFC wants Hong Kong operators to provide a compensation package to offset their risks.
  • Parties interested in giving feedback have until March 31, 2023.

The Securities and Futures Commission (SFC) of Hong Kong released its draft regulations for virtual asset trading platforms on Monday and is now accepting public feedback. The regulator intends to create a licensing regime for crypto service providers. 

The SFC requires all crypto service providers to “review and revise their systems and controls to prepare for the new regime.” It added that “those who do not plan to apply for a license should start preparing for an orderly closure of their business in Hong Kong.”

The SFC also proposed to allow “all types of investors, including retail investors, to access trading services provided by licensed VA [virtual asset] trading platform operators.” The proposal also suggests that a number of requirements must be satisfied before cryptocurrency trading for individual investors is resumed. These requirements include knowledge and risk evaluations, as well as possibly imposing restrictions on the amount of exposure traders are permitted to take.

Operators will be responsible for doing due diligence on tokens and keeping track of them under the proposed regulations. This includes evaluating the asset’s regulatory standing in each country where the operator offers trading services. Additionally, the proposal suggests examining the operator’s liquidity and whether or not a small number of people or groups control or have a disproportionate amount of the operator’s holdings.

Operators are only permitted to provide tokens that are listed on two “acceptable indices” and meet the SFC’s definition of an “eligible large-cap virtual asset.” The SFC requires service providers to perform smart contract audits on tokens to check for security risks. The new policy also notes that operators must avoid providing virtual assets that meet the definition of “securities” if it violates Hong Kong’s Securities and Futures Ordinance.

The proposed measure also requires operators to provide a compensation package to offset the risks. Additionally, operators must routinely review the number of customer assets held and adjust the arrangement as needed.

Discussions are ongoing over these and other aspects of the proposed crypto regime in Hong Kong. The deadline for interested parties wanting to participate in the process is March 31, 2023, as the regime is expected to take effect on June 1, 2023.

Lawrence Woriji
Lawrence Woriji Verified Author

I have covered some exciting stories in my career as a journalist and find blockchain-related stories very intriguing. I believe Web3 will change the world and want everyone to be a part of it.

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