Bloomberg has reported that as Hong Kong prepares for a consultation process that may eventually lead to the legalization of retail crypto trading in the territory, the government in Beijing may be subtly endorsing the idea. While the Chinese government has historically been cautious about cryptocurrencies and has implemented regulations to govern their use and trading in the country, the report suggests that the potential endorsement may reflect a shift in the government’s stance towards crypto trading.
Bloomberg reported that officials from China’s Liaison Office have been attending crypto gatherings in Hong Kong regularly. The nature of their visits and subsequent communications with specific projects has been amicable, according to the report.
According to some stakeholders, this could be interpreted as an endorsement of Hong Kong’s efforts to establish itself as a hub for cryptocurrencies. The Special Administrative Region of China is leveraging its distinct legal system and markets to serve as a testing ground, similar to how Hong Kong was China’s first experiment with open markets in the 20th century.
Bloomberg quoted Nick Chan, a National People’s Congress member and a crypto lawyer, as saying, “As long as one does not cross the red line, i.e., not to harm China’s financial stability, Hong Kong can explore its own path under the principle of ‘One Country, Two Systems.'” This statement suggests that there may be some flexibility for Hong Kong to pursue its own approach to cryptocurrency trading, as long as it does not threaten China’s financial stability.
The Securities and Futures Commission of Hong Kong has initiated a consultation process for Virtual Asset Service Providers (VASPs) who wish to obtain a license to offer retail crypto trading services. This marks the first move by the SFC towards opening up cryptocurrency trading to retail investors in Hong Kong, which was previously only available to professional investors.
The SFC’s proposal for allowing VASPs to offer retail crypto trading services includes several requirements. One of these is a due diligence process for tokens before listing, which would limit trading to pre-approved tokens. Another requirement is the establishment of a risk profile for clients to ensure that their exposure to crypto trading is reasonable.
The Securities and Futures Commission of Hong Kong has recently completed a consultation process that lasted several years, which will result in exchanges being permitted to offer services to professional investors with a net worth exceeding $1 million, starting from June 1.
It’s not known when the SFC will finish its consultation process on allowing retail investors access.
Hong Kong Proposes Rules for Crypto Trading Platforms
On Monday, Hong Kong’s Securities and Futures Commission (SFC) released a set of proposed regulations for virtual asset trading platforms and is now inviting feedback from the public.
In addition to establishing a licensing system for crypto service providers, the SFC is also soliciting opinions on the possibility of allowing licensed platforms to provide services to retail investors, as well as the appropriate measures for ensuring investor protection in such services. This was stated in an official announcement by the regulator.
The notice has stated that, under the new regulations, all crypto trading platforms, including those that already exist, intending to apply for a license should initiate the process of reviewing and updating their systems and controls to get ready for the implementation of the new regime.
“Those who do not plan to apply for a license should start preparing for an orderly closure of their business in Hong Kong,” it added. Hong Kong is also planning to regulate stablecoins starting in June this year.
The statement explains that businesses in Hong Kong that are not planning to apply for a license must begin preparing for an orderly closure of their operations. Additionally, Hong Kong is intending to implement regulatory measures for stablecoins beginning in June of this year.
On Monday, a consultation paper was released that outlines proposed requirements for entities subject to regulation, including conducting client risk assessments and establishing exposure limits that are considered reasonable.
Under these proposed measures, operators are responsible for conducting due diligence on tokens and monitoring them, including assessing the regulatory status of the asset in each jurisdiction where trading services are provided. The SFC proposes that operators should not offer virtual assets that would breach Hong Kong’s Securities and Futures Ordinance.
Operators will have to monitor the amount of customer assets held daily and adjust the compensation arrangement accordingly. Licensed operators may have to set up a token admission and review committee to assess tokens up for trade and set obligations for issuers to inform operators about any hard forks, airdrops, or regulatory action.
The SFC acknowledges that industry players are interested in offering derivatives and is open to hearing about business models and demand, and conducting a separate review to draft related policies.
The consultation period is open until March 31, while the new licensing regime is set to take effect on June 1.
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