Hong Kong Proposal on Crypto Regulations Not Entirely Bullish
TL;DR Hong Kong is planning to open its doors to crypto asset trading and investment. However, reading the fine print of the proposed regulations reveals a lot of restrictions and hidden catches. All centralized crypto trading platforms in Hong Kong, or marketing to Hong Kong investors, will need SFC licensing. Furthermore, any listed asset will need a background check on the issuers and developers and checks on the supply, demand, and liquidity of the tokens listed.
Hong Kong is planning to fully open its doors to crypto asset trading and investment. However, reading the fine print of its crypto regulations proposals reveals a lot of restrictions and hidden catches.
Crypto markets have been buoyed by news that Hong Kong may be paving the way for Chinese institutions to invest in crypto. Industry executives have hailed the move as bullish, with some claiming that Asia will drive the next bull market.
However, a consultation paper released by the Hong Kong Securities and Futures Commission (SFC) on Feb. 20 paints a different picture. Under a new licensing regime to take effect on June 1, 2023, all centralized crypto trading platforms in Hong Kong, or marketing to Hong Kong investors, will need SFC licensing, it read.
Julia Leung, the SFC’s Chief Executive Officer, commented:
“In light of the recent turmoil and the collapse of some leading crypto trading platforms around the world, there is clear consensus among regulators globally for regulation in the virtual asset space to ensure investors are adequately protected and key risks are effectively managed.”
Hong Kong to Enforce Heavy Restrictions
On Feb. 21, industry analyst Colin Wu highlighted some of the crypto regulations and restrictions the SFC plans to introduce.
Furthermore, any listed will need a background check on the issuers and developers. There also needs to be checks on the supply, demand, and liquidity of the tokens listed. Technical aspects of the blockchain, marketing materials, utilities, and legal risks will all come under heavy scrutiny.
This is all before a token can be listed on a crypto exchange in Hong Kong.
There will be an “acceptable index” for “eligible large-cap virtual assets,” the paper proposed. It also stipulated that it would bar crypto derivatives.
Wu also highlighted that licensed crypto exchanges should not participate in market-making activities. Furthermore, they will also need to have insurance to cover any potential risks.
It is noteworthy that the Hong Kong SFC proposed that the exchange should not deposit, transfer, lend, pledge, complement or otherwise deal with or create any encumbrance over client virtual assets, and should not engage in proprietary trading or market-making activities It is… https://t.co/xSlZA0w8Zw pic.twitter.com/waboI5zauL — Wu Blockchain (@WuBlockchain) February 21, 2023
Community Reaction
On Feb. 21, Cinneamhain Ventures partner Adam Cochran said:
“If that bill ends up passing with the current language than I’d honestly rather try and open a crypto exchange in the US rather than HK.”
He added, “maybe it gets reeled in a bit, but remarkably restrictive and burdensome currently.”
Others remain bullish, predicting that the few companies that qualify for a Hong Kong crypto license will still draw mainland Chinese investment.
Next crypto bull run starts with Chinese money just like all other cycles except 20-21