Crypto Trading In Hong Kong Goes Mainstream — How Investors Will Be Protected

Hong Kong's Securities and Futures Commission (SFC) has announced that it will start accepting applications for crypto trading platform licenses beginning June 1.

The SFC's new guidelines aim to regulate the crypto industry and protect retail investors.

According to the guidelines, licensed virtual asset providers can serve retail investors as long as they assess the investors' understanding of the risks involved.

The guidelines address various aspects of crypto trading platforms.

One notable rule is the explicit ban on crypto "gifts" or airdrops, which are designed to incentivize retail customers to invest.

The guidelines emphasize the importance of due diligence by platform operators and require them to maintain a minimum capital of 5,000,000 Hong Kong dollars ($640,000).

They must also submit regular reports on their financial status to the SFC.

To ensure the integrity of listed tokens, the guidelines state that approved tokens on regulated exchanges need to have a 12-month "track record."

Furthermore, all tokens listed on exchanges must go through due diligence procedures, including smart contract audits by independent assessors.

The guidelines also address the segregation of client and platform assets.

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Platforms can use an escrow arrangement or set funds aside to segregate client virtual assets, and client assets should be fully covered by each platform's compensation arrangement.

Regarding the sharing of information on crypto transactions, the SFC will implement the Financial Action Task Force's travel rule.

If required information cannot be submitted immediately, the SFC will accept a submission as soon as practicable until Jan. 1, 2024.

The revised guidelines will come into effect on June 1 and aim to enhance regulatory oversight, anti-money laundering measures, and criteria for fining platforms that breach the rules.

The SFC also plans to conduct a separate review on allowing derivatives, which are considered important for institutional investors.

These guidelines reflect Hong Kong's commitment to regulating the crypto industry and protecting investors, while also promoting transparency and compliance within the sector.

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