Hong Kong Securities Regulator: New Cryptocurrency Exchange Licensing Rules

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In its latest clarification toward the cryptocurrency industry, Hong Kong’s top securities watchdog has published a new regulatory framework that will license cryptocurrency exchanges that list security tokens like traditional securities brokers in the jurisdiction of the international financial center.

Unveiled by the Hong Kong Securities and Futures Commission (SFC) on November 6th, the regulator’s chief executive officer Ashley Alder explained at a local fintech convention the new crypto rules will apply to exchanges that list even a single security token, though platforms only offering non-securities like bitcoin (BTC) and ether (ETH) will not be affected.

Bitcoin Hong Kong

The rules, which build off a conceptual framework the SFC first put forth last November, is designed to offer comprehensive protections for investors, Alder said:

“Our new regulatory framework covers all of the key investor protection concerns, including the safe custody of assets, know-your-client requirements, anti-money laundering and market manipulation. And it also zeros in on many of the new concepts we are getting used to, such as hot and cold wallets, forks, airdrops and the like.”

Accordingly, the development paves the way for cryptocurrency exchanges to have an inroad to the mainstream in Hong Kong, albeit with firm compliance requirements that must be met in their entirety to gain an SFC greenlight.

SFC Cautions on Crypto Futures Contracts

On the same day it released its new regulatory framework for cryptocurrency exchanges, the SFC also published a public bulletin warning locals against participating in unregulated cryptocurrency futures offerings in Hong Kong.

The watchdog noted that cryptocurrency prices can be volatile and thus “highly leveraged” crypto futures contracts can pose considerable risks to investors. Moreover, the regulator has said it hasn’t approved a single entity in its jurisdiction to legally offer such contracts and currently has no plans to do so.

“Given the current risks associated with these contracts and in order to protect the investing public, the SFC would be unlikely to grant a licence or authorisation to carry on a business in such contracts,” the Commission’s bulletin read.

Crypto Funds Remain Scarce in Hong Kong

Last November, the SFC set out rules for local fund managers that wanted to invest directly into cryptocurrencies. Yet nobody said it was going to be easy to meet the Commission’s high regulatory bars.

Indeed, in the year since those rules were released, only a single investment fund appears to have met the regulator’s approval threshold, namely the firm Diginex, whose crypto investment operations were given the greenlight from the SFC this past summer.

As SFC CEO Ashley Alder noted during his convention remarks this week, those rules have accordingly achieved their defensive objective.

“These measures [have] meant that investor interests are now protected either at the fund management level, at the distribution level, or both,” Alder said.

Hong Kong and China to Collaborate on Blockchain Project

The central banking system in Honk Kong, the Hong Kong Monetary Authority (HKMA), separately announced on Wednesday that one of the body’s subsidiaries, Hong Kong Interbank Clearing Limited, had agreed to work with the digital currency research arm of the People’s Bank of China (PBoC) on a blockchain proof-of-concept project.

Specifically, the effort will entail linking the HKMA’s blockchain-powered trade finance platform eTradeConnect with the Chinese central bank’s own related venture, the PBoC Trade Finance Platform. Notably, eTradeConnect is backed by a dozen prominent banks in Hong Kong.

The platforms’ trial meld is set to start in the first few months of next year and will be focused on offering regional companies with “more convenient trade finance services.”

The development comes on the heels of Chinese President Xi Jinping recently declaring that blockchain will become a “core” technology in China going forward.

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William M. Peaster is a professional writer and editor who specializes in the Ethereum, Dai, and Bitcoin beats in the cryptoeconomy. He's appeared in Blockonomi, Binance Academy, Bitsonline, and more. He enjoys tracking smart contracts, DAOs, dApps, and the Lightning Network. He's learning Solidity, too! Contact him on Telegram at @wmpeaster

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