Hong Kong's Securities Watchdog Proposes Allowing Retail Investors To Trade Big-Cap Cryptocurrencies

Hong Kong's securities watchdog, the Securities and Futures Commission (SFC), has proposed a policy that will allow retail investors to trade in large-cap cryptocurrency tokens, such as Bitcoin BTC/USD and Ethereum ETH/USD, through licensed virtual-asset platforms.

This move aims to provide regulatory oversight and investor protections to cryptocurrency investment activities that were once vibrant but unregulated, the South China Morning Post reported.

The virtual-asset platforms that will be licensed through the new cryptocurrency regulatory regime, effective from June 1 this year, can offer only "eligible large-cap virtual assets" to retail investors.

These assets should be included in at least two acceptable indices issued by at least two independent index providers, the SFC said.

The consultation period for the policy will end on March 31.

The SFC's consultation paper comes as governments worldwide begin to regulate the freewheeling cryptocurrency market following a series of meltdowns last year, including that of FTX FTT/USD, previously the world's second-largest cryptocurrency exchange.

According to the SFC, the collapses resulted in substantial losses to tens of millions of investors and exposure risks arising from the "increasing interconnectedness" between the virtual-asset market and the traditional financial system.

Effective regulation is crucial, the watchdog added.

Under the new regime, exchanges can decide which cryptocurrency tokens retail investors can trade and how much they can invest.

Before offering these tokens to investors, platforms will need to consider general factors, such as a virtual asset's management team, maturity, and liquidity, and the security infrastructure of its blockchain protocol.

Also read: As Bitcoin Hits $25,000 Ceiling, Experts Say Investors Turning To Crypto As A Safe Haven

The platforms will also need to conduct knowledge assessments on investors before serving them, and set exposure limits for customers depending on their financial situations.

They will also set up token admission and review committees, which will be responsible for following through with the SFC's admission criteria and making final decisions on whether to admit, halt, suspend, or withdraw offerings.

Hong Kong has recently made a major push to become a virtual-asset hub, with policies unveiled last year legalizing retail access to cryptocurrency trading.

In December 2022, the city passed the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill, which introduced the new virtual-asset platform licensing regime.

After June 1, unlicensed cryptocurrency trading activity will be a criminal offense, the SFC said.

Hong Kong has taken a conservative stance towards cryptocurrencies since 2018, limiting cryptocurrency trading on licensed exchanges to professional investors – individuals with a portfolio of at least HKD8 million ($1 million).

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