In a bid to regain its position as a global crypto hub, Hong Kong has outlined plans to allow retail investors to trade certain digital currencies on licensed exchanges.
On Monday, the Hong Kong Securities and Futures Commission (SFC) published a consultation paper on the proposed regulatory regime for cryptocurrency trading platforms. The new rules will take effect from June and will require all crypto platforms to be licensed by the SFC.
The regulator also noted that retail investors will be allowed to trade certain “large-cap tokens” on licensed exchanges, given that safeguards such as background checks, risk profiles and reasonable risk limits are put in place.
The agency did not specify which large-cap tokens would be allowed. However, the FT report claims that Bitcoin and Ethereum, the two largest cryptocurrencies by market capitalization, will be opened up to retail customers.
The SFC has also put forward criteria under which cryptocurrencies will be able to be traded. Exchanges will be responsible for vetting the team behind the token, marketing materials and legal risks, as well as finding out “how much it [мережа токена] resistant to typical attacks”. In addition, the token must have a relatively large market capitalization.
The agency defined large-cap virtual assets as tokens “that are included in at least two ‘eligible indices’ issued by at least two independent index providers,” one of which must have experience in the traditional financial sector.
It is worth noting that cryptocurrency exchanges must not store more than 2% of their client assets in “hot wallets”, which are a type of wallet available online. This is because these wallets are more vulnerable to hackers or phishing.
Hong Kong is repositioning itself as the crypto landscape improves
The SFC first introduced its cryptocurrency regulatory framework back in 2018, which banned retail investors from trading in cryptocurrency. However, the SFC said the “virtual asset landscape has changed significantly” since it first announced the regulatory regime.
In particular, the Hong Kong government has already allowed retail investors access to exchange-traded funds (ETFs) that invest in CME Group (CME) Bitcoin and Ether futures.
Also, earlier this month Hong Kong attracted a $102 million digital green bond. The sale marked the first tokenized green bond issued by the government, demonstrating the government’s forward-looking stance on blockchain and DLT.
Still, Hong Kong’s move stands in stark contrast to mainland China, which bans all types of cryptocurrency-related transactions. With the introduction of a more cryptocurrency-friendly regulatory environment in the city, some China-based Web3 companies in exile may turn to Hong Kong for Chinese tech talent.
Hong Kong, once the world’s crypto hub, began to lose ground in mid-2022 amid growing concern over the city’s ambiguous cryptocurrency regulation and the emergence of potential competitors such as Singapore and Dubai, which are seen as friendlier to the crypto industry.
“There was a time when Hong Kong was at the forefront of cryptocurrency and cryptocurrency-related businesses,” Padraig Walsh, a partner at Hong Kong law firm Tanner De Witt, said in September. “That’s not the case anymore, and I think a key part of the reason for that is regulation.”
