Starting from June 1st, the Hong Kong Securities Regulator will commence accepting license applications from crypto exchanges.

Hong Kong Securities Regulator to Accept License Applications for Crypto Exchanges from June 1

The Hong Kong Securities and Futures Commission (SFC) has announced that it will begin accepting applications for licenses from crypto trading platforms starting June 1. This move comes after the SFC released its consultation on policy recommendations and received public feedback earlier this year.

According to the SFC’s guidelines, licensed virtual asset providers will be permitted to cater to retail investors, as long as they assess the investors’ understanding of the associated risks. The regulator also proposed that stablecoins, which are cryptocurrencies pegged to the value of other assets, should not be allowed for retail trading until the jurisdiction’s planned regulations for this asset class are implemented.

One notable aspect of the guidelines is the prohibition of crypto gifts, including airdrops, that are designed to incentivize retail customers to invest. The SFC emphasizes the responsibility of platform operators to conduct due diligence, with the requirement that being listed for trading on two acceptable indices is the minimum criterion. Additionally, crypto exchanges must maintain a minimum capital of 5,000,000 Hong Kong dollars ($640,000) at all times and provide monthly reports on available and required liquid capital, as well as other financial details.

The guidelines also cover topics such as allowing retail investors to use trading platforms, conducting due diligence on token listings, and the segregation of client and platform assets. Token listing procedures will require thorough due diligence and smart contract audits. While there is no regulatory regime for custodians of virtual assets, the SFC has stated that engaging third-party custodians would hinder their supervision and enforcement efforts.

The SFC plans to consult on the inclusion of derivatives, which are considered crucial for institutional investors, and has addressed the implementation of the Financial Action Task Force’s (FATF) travel rule for sharing information on crypto transactions between financial institutions. The revised guidelines, which also provide clarifications on anti-money laundering requirements and criteria for fines, will come into effect on June 1.

Overall, the SFC’s decision to accept license applications for crypto exchanges marks a significant step in regulating the cryptocurrency industry in Hong Kong and ensuring investor protection.