Securities Regulatory Authority of Hong Kong may soon start monitoring Crypto trading platforms more closely.
The government of Hong Kong is focused on amending the regulations for local cryptocurrency trading companies and for companies that offer cryptocurrency-related services.
A new document from the director of licensing at the Securities and Futures Commission (SFC) establishes its supervisory role in Hong Kong for transactions and operations that involve “centralized virtual assets”, such as cryptocurrency. This was stated in the speech delivered on Nov 3 at FinTech Week 2020. During 2019, signing up as a digital asset trading firm was not required by law, however the SFC already outlined general regulatory guidance at that time.
New provisions will impose legal responsibility for cryptocurrency trading companies to apply in accordance with the city’s anti-money laundering legislation, since Hong Kong has to implement new provisions in accordance with the Financial Action Task Force law. Under this law any market manipulations on behalf of cryptocurrency trading firms will be deemed as market manipulation, and certain restrictions will be imposed.
A new regulatory framework for crypto exchanges
This follows the introduction of a new regulatory framework that allows crypto exchanges to opt-in for licensing by the Securities and Futures Commission of Hong Kong.
Starting November 4th any trading platform may now apply for a license based on its eligibility factors such as safe custody of assets, insurance, hot and cold wallets, and private key management.
Ashley Alder, the CEO of The Hong Kong Securities and Futures Commission (SFC), said that SFC has carried out an examination on how cryptocurrency exchange platforms and their operational methods, highlighting that the number of such firms has been growing but, due to existing legislative framework, they would not fall within the legal definition of securities and futures contracts. The new statute will regularize the control over such virtual assets trading platforms which will allow more transparency for investors that choose to work with aforementioned firms.
The new regulation will introduce at least two types of licensing that will be granted by the Commission: The Type 1 license dealing in securities and the Type 7 for automated trading services activities. Platforms that offer crypto trading, clearing, and settlement services will be eligible to be licensed. Subsequently, operations of a licensee will be reviewed; any new non-core services will have to be validated and approved by the SFC before they can be offered to public.
The plan is outlined in a document called “The Position Paper”. A Licensee will only be allowed to provide services to professional investors; that definition would include an individual, a partnership or a corporation with a portfolio of at least 8 million HKD (~$1 million) or equivalent, or a trust corporation with total assets of at least 40 million HKD or equivalent.
One of the conditions to be eligible for licensing is the ability of a trading platform to implement the insurance policy of hot storage and cold storage, storing 98% of client crypto assets in cold wallets and limiting the amount stored in hot wallets to 2%, licensing also stipulates the obligation of a licensee to ensure strict private key management policy, to take measures against market manipulation and abusive activities.
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