By
Chimamanda U. Martha
April 16th, 2024
Moving away from the “opt-in” approach, Hong Kong’s top financial regulator has mandated licensing of all crypto exchanges operating in its jurisdiction.
On Tuesday, November 3, the Hong Kong market’s regulator – Securities and Futures Commission (SFC) – announced the regulations of crypto trading platforms operating in the region. This is a strong step by the SFC from its previous “opt-in” approach.
Regulating cryptocurrency trading platforms is nothing new as top regulators of other countries have also followed the path. Moreover, even crypto-friendly nations like Japan and Singapore have strict regulations in place.
Over the last few years, centralized exchanges have been vulnerable to external attacks. The exchanges have reportedly lost millions-of-dollars worth of investors’ funds. Moreover, illicit activities from the insiders have also pushed regulators to look into this matter. This regulatory approach ensures the protection of investors’ money and further prevention of money laundering activities.
Last year, Hong Kong’s SFC launched a regulatory framework for crypto trading platforms. However, the regulatory scrutiny was only specific to the platform’s trading crypto securities or futures. SFC chief executive Ashley Alder said:
“This is a significant limitation, as under the current legislative framework if a platform operator is really determined to operate completely off the regulatory radar it can do so simply by ensuring that its traded crypto assets are not within the legal definition of a security”.
Hong Kong to Introduce a New Licensing Regime for Crypto Platforms
Taking a step further, the Hong Kong government is likely to propose a new licensing regime for its anti-money laundering legislation. This will mandate all crypto trading platforms to apply for an SFC license.
So far, the SFC hasn’t issued any license to any cryptocurrency exchange. However, it has agreed to issue a license to a Fidelity-backed cryptocurrency firm OSL Digital Securities. In his speech, Alder added:
“Once this new regime is in place, all virtual asset trading platforms in Hong Kong would be regulated, supervised and monitored under one of two regimes: the existing opt-in framework we introduced last year, or the proposed new licensing approach being announced today. Failure to do so would, of course, be an offense.”
Commenting on the SFC move, Hugh Madden, CEO of BC Group that operates OSL, said that some firms might choose to relocate to avoid regulations. Some of the global crypto exchanges like OKEx, Huobi, FTX, and BitMEX, operate in Hong Kong.
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