Hong Kong regulator to Issue Crypto Licences with Retail Investor Guardrails
The Hong Kong regulator, the Securities and Futures Commission (SFC), is set to issue licences to crypto exchanges operating in the region under a new regulatory framework that it has created. The licences will come with a series of “guardrails” to help protect retail investors.
The new regulatory framework was laid out by the SFC in November 2018 and was designed to bring crypto exchanges under the same regulatory regime as traditional securities brokers. Under the framework, exchanges will be required to apply for a licence from the SFC, which will then have the power to investigate and penalise any breaches of regulations.
The SFC has now said that it will begin issuing licences to exchanges that meet its regulatory requirements, which include anti-money laundering and counter-terrorist financing controls, as well as business continuity and cyber security measures.
However, the regulator has also said that it will impose certain “guardrails” on crypto exchanges that want to offer services to retail investors. These guardrails are designed to help protect retail investors who may not have the same level of understanding of the risks associated with crypto trading as institutional investors.
The first guardrail is a requirement for exchanges to limit access to their platforms to professional investors only. This is in line with the SFC’s existing rules for the sale of other types of investment products, such as stocks and bonds.
Retail investors will not be completely excluded from crypto trading, however. They will be able to access cryptocurrency products through licensed asset managers who will have to comply with the same regulatory requirements as the exchanges themselves.
The second guardrail is a requirement for exchanges to provide more detailed and accurate information about the risks associated with crypto trading. This includes providing information about the volatility of cryptocurrency prices, as well as the potential risks associated with holding cryptocurrencies.
Exchanges will also be required to provide more detailed information about the types of cryptocurrencies they offer and the risks associated with each one. This information will have to be provided in a clear and understandable way, and exchanges will be required to provide regular updates to their customers.
Finally, the SFC has said that it will require exchanges to put in place measures to prevent market manipulation. This includes measures to prevent insider trading, as well as techniques such as wash trading that are used to artificially inflate trading volumes.
Overall, the new regulatory framework and guardrails put in place by the SFC represent a significant step forward for the regulation of cryptocurrency in Hong Kong. By bringing crypto exchanges under the same regulatory regime as traditional securities brokers, the SFC is helping to protect consumers and investors while also promoting the development of the cryptocurrency industry in Hong Kong.
Hong Kong’s Securities regulator, the Securities and Futures Commission (SFC), is set to crack down on digital asset companies in an effort to protect retail investors. The timing of the move comes after a year of turmoil in the sector, which saw the collapse of crypto exchange FTX and fuelled concerns that consumers were not sufficiently protected.
From June 1, the Hong Kong authorities will require all trading platforms and exchanges to apply for a licence. If they fail to comply, they face fines and jail terms. Furthermore, operators must perform client checks to ensure that retail traders from China, where crypto trading is banned, are not accepted.
The SFC has concluded a consultation on digital asset trading, which proposes various measures to protect investors. A total of 152 submissions were received. The measures include requiring companies to set an exposure limit for retail investors and only allowing retail trading in highly liquid tokens that have been issued for at least one year.
The new system also covers advertising from unlicensed platforms. The SFC’s fintech unit, Elizabeth Wong, said that “it is an offence to issue advertisement related to an unlicensed platform, this would cover (social media influencers) personally promoting services (of these platforms) to Hong Kong investors.”
On Monday, the International Organization of Securities Commissions (IOSCO) unveiled the first global approach to regulating cryptocurrencies, acknowledging the potential risks and challenges associated with the sector.
Despite these moves, some investors remain undeterred, and bitcoin has since recovered 75% to $27,431 as of Tuesday. It has hovered above $26,000 since the banking turmoil in the US and Europe in March.
The SFC will start accepting applications from June 1, but it remains to be seen how many companies will apply for a license and how many will continue to operate without one.
In conclusion, the SFC is taking a step in the right direction by introducing stricter regulations on digital asset companies to better protect retail investors. The move could be seen as catching up with the rest of the world, as global regulators are increasingly taking an interest in the sector and introducing their approach to regulating cryptocurrencies. Investors should be mindful of these developments and seek proper advice before investing in the sector.
