Hong Kong outlines upcoming crypto licensing regime

The Hong Kong Securities and Futures Commission (SFC) is calling on the public to comment on a new proposed licensing regime for cryptocurrency exchanges that will come into effect from June 2023.

Key to the public consultation window is whether licensed exchanges should be allowed to serve retail investors in the country and what steps should be taken to ensure a set of “strong investor protections.”

SFC announced consultation process on Feb. 20 outlining a new licensing regime for the industry that proposes that all centralized cryptocurrency trading platforms operating in Hong Kong be licensed by the regulator.

The SFC’s proposed regulatory guidance is based on existing requirements for licensed securities brokers and automated trading venues, with changes to some of the existing prerequisites.

In a statement, SFC CEO Julie Leung highlights that the “recent turmoil” in the cryptocurrency ecosystem and the collapse of industry players like FTX is the main reason for the emergence of clear regulatory guidance for the industry, with a focus on investor protection:

“As has been our philosophy since 2018, our proposed requirements for virtual asset trading platforms include strong measures to protect investors in line with the “same business, same risks, same rules” principle.

According to the announcement, any person or company providing cryptocurrency-related services must apply for a license from the SFC. In addition, a number of requirements have been established for cryptocurrency exchanges and service providers.

This includes many prerequisites, including safe custody of assets, the principle of “know your customer”, conflicts of interest, cybersecurity, accounting and auditing, risk management, anti-money laundering/counter terrorist financing and prevention of market misconduct.

Hong Kong regulator seeks to restrict retailers of liquid products

Businesses that intend to continue operating and apply for a license are encouraged to review and revise existing systems and controls to ensure they are compliant with the upcoming regime. Exchanges and service providers that do not intend to apply for a license will need to prepare to close their business in Hong Kong.

The Hong Kong SFC also intends to publish and maintain a list of licensed cryptocurrency exchanges and service providers to inform the general public about the registration status of various firms.

As Cryptooshala previously reported, Hong Kong financial service providers began asking for licensing requirements following an amendment to the Anti-Money Laundering and Terrorist Financing Ordinance (AMLO) in December 2022.

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