Crypto Companies Compete for Licenses in Hong Kong Before Retail Launch on June 1

Updated: 30 May 2023

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The Securities and Futures Commission (SFC) of Hong Kong has finalized rules to allow retail trading of crypto beginning June 1. The regulator made this announcement on May 29, paving the way for a much-anticipated step in the city’s push to become a virtual assets hub.

According to a report on its consultation on policy recommendations released Tuesday, the SFC has agreed to allow licensed virtual asset providers to serve retail investors, provided that operators assess their understanding of the risks involved. In February, the SFC solicited public feedback on its initial policy recommendations.

Hong Kong Crypto Security Regulations

Currently, no security regulation bodies exist for cryptocurrency in Hong Kong. Still, the country has put in place three financial governing bodies to take charge of the regulation:

The Securities and Futures Commission
The Hong Kong Monetary Authority (HKMA)
The Insurance Authority (IA)

While speaking in an interview held on Tuesday at the Bloomberg Wealth Asia Summit, the Hong Kong Monetary Authority Chief Eddie Yue stated;

“Our regulations will be tight. We will let them create the ecosystem here, which brings much excitement. But that doesn’t mean light-touch law.

SFC has, however, given guidelines forbidding the use of “gifts” designed to incentivize retail investments, including airdrops, and states that stablecoins should not be admitted for retail trading until they are regulated.

According to a report on its consultation on policy recommendations released on May 16, the regulator has agreed to allow licensed virtual asset providers to serve retail investors, provided that operators assess their understanding of the risks involved. In February, the SFC solicited public input on its initial policy recommendations.

The SFC will also permit platforms to separate client and platform assets through an escrow arrangement or by the licensed platform setting aside funds. Each platform’s compensation arrangement should fully cover client virtual assets.

The consultation paper, released Monday, outlines proposed requirements such as assessing clients’ risk profiles and establishing limits to ensure their exposure is “reasonable.”

When it comes to implementing the Financial Action Task Force’s (FATF) travel rule for sharing information on crypto transactions between financial institutions, the SFC states that if the team cannot submit the information to the beneficiary institution immediately, it will accept the submission as soon as possible after the virtual asset transfer until January 1, 2024.

Trading Platforms for Cryptocurrency in Hong Kong

OSL and Hashkey Group are the few trading platforms already receiving SFC licenses, among others like Huobi.

Hong Kong Licensed Virtual Assets Association (HKLVAA) and Web3 Harbour have since announced their launches in a joint statement.

The HKLVAA intends to serve VASP-licensed firms and those interested in becoming licensed in the city, whereas Web3 Harbour intends to aid local Web3 development.

HongKong SFC sets out the requirements would consider authorising ETFs that obtain exposure to virtual assets primarily through futures contracts for public offering in Hong Kong. SFC is prepared to accept applications for authorization of VA Futures ETFs. https://t.co/Uz3gtohKg2 pic.twitter.com/hg9P3MrGoU

— CryptoDao Ventures?? (@Cypto_Dao) November 1, 2022

Moreover, the Hong Kong-based cryptocurrency exchange CoinEx also announced the launch of a local platform called BitHK, which will submit its Virtual Asset Service Provider (VASP) license application to the securities regulator on June 1. During a meeting held in February, the SFC disclosed that it would, however, place some rules and regulations.