Hong Kong treads positive line on regulating retail crypto commerce

HONG KONG: Retail buyers in Hong Kong could quickly be capable of purchase common cryptocurrencies like bitcoin at government-licensed exchanges, due to new guidelines meant to bolster town's standing as a digital asset hub.

World crypto markets have but to get better from a string of high-profile failures in latest months, together with the spectacular downfall of buying and selling platform FTX and crypto-friendly US banks Signature and Silvergate.

However the so-called "crypto winter" has not deterred Hong Kong authorities from embracing the sector, a pivot that started final October and culminated with new legal guidelines for crypto exchanges beginning Jun 1.

Officers are additionally hoping the shift shall be a boon for town's economic system, which continues to battle within the wake of the pandemic, social unrest and the affect on enterprise confidence from a Beijing-imposed nationwide safety regulation.

Crucially, observers say it’s going to cement Hong Kong as a key route for mainland Chinese language buyers seeking to commerce crypto, which is outlawed within the nation.

Regulators are hoping to woo corporations with beneficial enterprise circumstances, however should stability that in opposition to the necessity for investor protections – a well-developed space in conventional finance however much less so within the virtual-asset area.

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"There’s an specific acknowledgement that these merchandise have gotten increasingly more a part of our economic system," Giuliano Castellano, a regulation professor on the College of Hong Kong, instructed AFP.

The town has had a voluntary licensing system for crypto buying and selling platforms since 2019, however licensees might solely service skilled purchasers with portfolios of no less than HK$8 million (US$1 million).

With out licensed native choices, Hong Kong's retail crypto merchants are relegated to offshore web sites reminiscent of Binance and Coinbase, or a raft of brick-and-mortar outlets that purchase and promote tokens for money.

The client-base restriction was unpopular with Hong Kong's crypto companies, and officers finally dropped it when designing the incoming guidelines.

"The genie's out of the bottle," mentioned Kristi Swartz, a fintech lawyer at DLA Piper, referring to retail crypto buying and selling.

"(They) simply should face actuality … If it's already there, let's attempt to regulate it."


Hong Kong is racing regulators all over the world to determine floor guidelines for crypto, which regardless of its crashes nonetheless has a world market capitalisation of greater than US$1 trillion.

The European Union earlier this month accredited the world's first complete guidelines on the sector and worldwide securities watchdog IOSCO proposed its suggestions shortly afterwards.

In distinction to evolving attitudes on crypto worldwide, China has maintained a strict ban since 2021.

Hong Kong – a Chinese language metropolis with monetary rules separate from the mainland – holds particular attraction for China's crypto companies and buyers, in accordance with Leo Weese, co-founder of the Bitcoin Affiliation of Hong Kong.

"There’s a big urge for food from … (Chinese language) cryptocurrency ventures to have any sort of authorized presence on Chinese language soil," he mentioned, including that corporations see it as a gateway to the profitable mainland market.

In each conventional finance and crypto, it’s common for mainland Chinese language buyers to be recognised as Hong Kong purchasers if they’ve a checking account and handle within the metropolis.

"After getting a Hong Kong licence, you’re going to have the ability to persuade numerous your mainland purchasers… that it's secure for them to work together with you thru their Hong Kong checking account," Weese instructed AFP.

Main crypto exchanges like Huobi and OKX, each based in China, have introduced plans to use for a Hong Kong licence.

Whereas Beijing's anti-crypto stance stays unchanged on paper, senior economic system officers have publicly backed Hong Kong's ambitions.

"You possibly can see that China says, 'Look, if it occurs in Hong Kong, inhabitants circa seven, eight million, that's positive. We are able to use it as our petri dish,'" Swartz instructed AFP.


Not like the outgoing system, the retail-friendly guidelines taking impact in June shall be necessary, which means all exchanges doing enterprise in Hong Kong will finally have to get licensed.

Hong Kong regulators mentioned they hope to maneuver rapidly on issuing the primary licences.

Some crypto companies say the change isn’t anticipated to disrupt day-to-day operations as authorities enable a one-year transition interval.

HashKey and OSL, the 2 current licensees, instructed AFP they are going to apply for recent licences and develop their retail presence.

"There's a really vital want available in the market to have platforms which might be simply accessible… however are additionally correctly managed and correctly regulated," mentioned Michel Lee, HashKey Group's government president.

"This new regime provides much more readability as to what you're getting, what's the security commonplace you may be supplied with."

With the reminiscence of FTX's collapse nonetheless recent, Hong Kong regulators mentioned the brand new guidelines goal to "present strong investor safety and handle key dangers".

One safeguard is that exchanges can solely present "large-cap digital property" – reminiscent of bitcoin and ethereum – to retail buyers, and should arrange inside committees to resolve which cryptocurrencies to supply.

Retail purchasers additionally should endure data checks and threat profiling earlier than they’ll commerce – although it stays unclear what degree of data is deemed sufficient.

In the meantime, merchandise like stablecoins and crypto derivatives are off-limits for retail buyers in the intervening time.

"The brand new rules are supposed to defend buyers higher," mentioned Castellano, the authorized scholar.

"It's smart to have a cautionary strategy."

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