Hong Kong to allow retail investors to trade crypto under new regulations

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Hong Kong has introduced new crypto regulations to allow retail investors to buy popular cryptocurrencies like Bitcoin through authorized exchanges. These regulations will become effective on June 1.

Hong Kong officials are optimistic about the move. They believe it will provide a much-needed boost to the city’s economy, which has faced significant challenges due to the COVID-19 pandemic, social unrest and the impact of a national security law imposed by Beijing. According to experts, this development will solidify Hong Kong’s position as a hub for mainland Chinese investors seeking to engage in cryptocurrency trading.

Since 2019, Hong Kong has implemented a voluntary licensing system for crypto trading platforms. However, until now, these licensees were restricted to professional clients with portfolios amounting to at least HK$8 million ($1 million).

Without locally licensed alternatives, retail crypto traders in Hong Kong are limited to offshore platforms like Binance and Coinbase or rely on various physical stores that facilitate token transactions in exchange for cash.

Hong Kong’s crypto businesses expressed discontent with the restriction, prompting officials to abandon the current regulations and develop some new ones. In contrast to the previous system, the upcoming regulations will require all exchanges operating in Hong Kong to obtain a license.

Hong Kong racing to determine fundamental guidelines

As global regulators scramble to establish regulations for the crypto industry, Hong Kong is also racing to formulate its own guidelines. Despite experiencing price fluctuations, the crypto market maintains a market capitalization exceeding $1 trillion, prompting the urgent need for regulatory frameworks.

Earlier this month, the European Union approved the world’s inaugural comprehensive regulations for the sector. Later, the International Organization of Securities Commissions (IOSCO) proposed its recommendations on the matter.

China has maintained a strict ban on crypto since 2021, setting itself apart from the global trend. Bitcoin Association of Hong Kong founder Leo Weese said that the city’s separate financial regulations from mainland China make it an attractive destination for crypto businesses and investors.

He insisted that there is a significant eagerness among Chinese crypto ventures to establish a legal presence in Hong Kong as these firms view it as a gateway to the highly profitable mainland market.

Weese claimed that having a Hong Kong license allows companies to gain the trust of their mainland clients, assuring them that it is secure to engage with the company through their Hong Kong bank accounts.

Renowned crypto exchanges such as Huobi and OKX, originally established in China, have revealed plans to seek a license from Hong Kong authorities.

Despite the unchanged official stance of Beijing on cryptocurrencies, senior economic officials have publicly voiced their support for the aspirations of Hong Kong.

Safety measures in place

Under Hong Kong’s new regulatory framework, individual investors can now trade larger cryptocurrencies on exchanges that hold licenses from the Securities and Futures Commission (SFC).

The regulatory framework includes various safeguards such as knowledge tests, appropriate risk profiling and reasonable limits on exposure to ensure investor protection.

Licensed platforms offering cryptocurrencies must ensure that their digital assets are included in at least two reputable and investable indexes from independent entities. One of these index providers must have experience in the traditional financial sector.

The SFC has implemented investor protection measures in its guidelines, which include onboarding processes, governance practices, disclosure obligations, token due diligence and admission procedures.

Compliance with these measures is mandatory before licensed platforms can offer trading services to retail investors.

Keith Choy, the interim head of intermediaries at the SFC, said that unlicensed exchanges, such as platforms operating from overseas, will violate the law if they actively promote their services to investors in Hong Kong starting from June 1.

“We will be closely monitoring,” Choy said.


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