Hong Kong Regulator Establishes Rules for Crypto Exchanges to Obtain Licenses


The Hong Kong financial regulator on Wednesday published new rules which allow cryptocurrency exchanges to receive a license for operating, which is a step that is intended to improve the standards and regulation. It will also help to prevent fraud.

There has been a debate by the market watchdog on how and whether the cryptocurrency industry should be regulated considering the plans of Facebook to launch the Libra digital currency. This cause many of them to broaden the digital assets focus beyond just the protection of investors.

There are dozens of cryptocurrency exchanges which are hosted by Hong Kong. They are also called virtual asset trading platforms, and they include some of the largest in the world.

The chief executive of Hong Kong’s securities and Futures Commission (SFC), Ashley Alder, said that these exchanges had escaped regulation until now since most of the virtual assets which were traded on their platforms weren’t really securities.

“After an in-depth examination of their unique technical and operational features, we concluded that some could be regulated by us,” said Alder in a speech before the SFC published its new regulations.

A few cryptocurrency exchanges in Hong Kong which and even elsewhere which say that they welcome the regulation because it will help to boost standards and even make it possible for exchanges which are licensed to differentiate themselves from competitors which are not licensed. However, there are others which prefer to operate under the radar.

The Current Framework

The new rules which the exchanges are supposed to apply in order to be regulated from Wednesday show exactly the kind of standards the SFC expects for the conventional securities brokers.

The rules stipulate that any exchange which wants to be licensed should provide services only to investors who are professionals, have an insurance policy that protect clients in case of lost or stolen assets, and use a market surveillance mechanism which is external.

However, you should note that cryptocurrency exchanges which do not trade products defined as a security don’t need an SFC license to operate. Bitcoin for example is not a security, Alder said.

But, new legislation would be required due to the bringing of all exchanges under the SFC’s wing. However, it is not yet clear the number of cryptocurrency exchanges that will apply for the license in order to meet the standards.

Last year, a new framework was announced by Alder to allow asset managers who were investing in digital assets and selling products in Hong Kong to receive an SFC license. But, none have been able to meet the requirements of the SFC.

On Wednesday, the SFC provided a warning in a separate statement to investors about the purchase of Bitcoin futures in Hong Kong. In his speech, Alder said that exchanges that allowed trading of such products “may well be conducting an illegal activity.”


About the author

Sara Clack

Sara Clack

After seven and a half years of Technology experience, Sara resigned and joined industry icon and former Technology executive Austin Foley to serve as the Global Brand Ambassador and the Head On-site Reporter for our website.

Phone: +1 416 551-0431

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