HK watchdog concludes consultation on regulation of crypto trading platforms
Hong Kong’s Securities and Futures Commission (SFC) today released the Consultation Conclusions on the Proposed Regulatory Requirements for Virtual Asset Trading Platform Operators Licensed by the SFC.
During the consultation period, the SFC received 152 written submissions from industry and professional associations, professional and consultancy firms, market participants, licensed corporations, individuals and other stakeholders. Respondents generally welcomed the proposed requirements, while a number of them sought clarifications. Taking into consideration the wide-ranging comments and suggestions provided by respondents, the SFC has modified or clarified some of the proposed requirements.
A significant majority of respondents agreed to the SFC proposal to allow licensed trading platform operators to serve retail investors. The SFC will implement a number of robust measures to protect these investors including ensuring suitability in the onboarding process, good governance, enhanced token due diligence, admission criteria and disclosures.
“Providing clear regulatory expectations is the key to fostering responsible development,” said Ms Julia Leung, the SFC’s Chief Executive Officer. “Hong Kong’s comprehensive virtual assets regulatory framework follows the principle of ‘same business, same risks, same rules’ and aims to provide robust investor protection and manage key risks. This will enable the industry to develop sustainably and support innovation.”
The Guidelines for Virtual Asset Trading Platform Operators will become effective on 1 June 2023. The Guidelines set out, among others, safe custody of assets, segregation of client assets, avoidance of conflicts of interest and cybersecurity standards and requirements expected of licensed trading platforms. SFC will provide additional guidance on the new regulatory requirements, other implementation details including licence application procedures, as well as more information about the transitional arrangements.
Operators of virtual asset trading platforms who are prepared to comply with the SFC’s standards are welcome to apply for a licence. Those that do not plan to do so should proceed to an orderly closure of their business in Hong Kong.
The SFC will continue its efforts with the Investor and Financial Education Council to warn investors about the risks of trading on unregulated platforms. In particular, despite the commencement of the regime on 1 June 2023, the SFC has yet to approve any virtual asset trading platform to provide services to retail investors and most virtual asset trading platforms currently accessible by the public are not regulated by the SFC.