Hong Kong SFC Chief Executive: New Guidelines for Crypto Trading Platforms Prioritize Investor Protection

The Hong Kong Securities and Futures Commission (SFC) announced that the upcoming guidelines for operators of virtual asset trading platforms will place investor protection at the forefront. Julia Leung, Chief Executive of the SFC, made these remarks on May 30 during an online seminar in the Distinguished Leaders Series hosted by the Hong Kong Institute of Finance.

Back in 2018, when the SFC first proposed regulatory measures for virtual asset trading platforms, it faced criticism from parts of the fintech sector. Critics claimed that the licensing system – requiring applicants to meet standards related to internal controls and investor protection – could drive financial technology companies to operate in other regions like Singapore. However, Julia Leung noted that the importance of these requirements became clear to the market after several overseas virtual asset platforms went bankrupt.

The guidelines for virtual asset trading platform operators in Hong Kong will take effect starting in June. Julia Leung believes these guidelines align with market expectations and that prioritizing investor protection is the right course of action. The guidelines will include measures on the prudent custody of assets, the separation of client assets, and avoiding conflicts of interest.

Julia Leung expressed her satisfaction with the SFC’s leadership in regulatory practices, saying, “We are pleased to see the SFC leading as a regulatory role model.”

The SFC’s new regulations underscore the importance of investor protection in an increasingly digital financial landscape and reflect a growing trend of financial regulators worldwide prioritizing investor safeguards in their approach to the fast-evolving cryptocurrency industry.


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Hong Kong SFC Finalizes Regulatory Framework for Virtual Asset Trading Platforms

The Securities and Futures Commission (SFC) of Hong Kong concluded a consultation period today, revealing the finalized regulatory requirements for operators of virtual asset trading platforms licensed by the SFC.

Over the consultation period, the SFC collected 152 written submissions from stakeholders including industry and professional associations, professional and consultancy firms, market participants, licensed corporations, and individuals. These respondents largely welcomed the proposed measures, although several requested clarifications. Following an assessment of the feedback, the SFC made modifications and clarifications to some of the proposed requirements.

In a notable decision, the SFC has approved the proposal to allow licensed platform operators to cater to retail investors, with the majority of respondents showing agreement. To safeguard these investors, the SFC will introduce robust measures such as suitability assessments during onboarding, rigorous token due diligence, admission criteria, improved governance, and mandatory disclosures.

“Hong Kong’s comprehensive virtual assets regulatory framework adheres to the principle of ‘same business, same risks, same rules’, with a key focus on robust investor protection and risk management,” said Ms. Julia Leung, the SFC’s Chief Executive Officer. “This will foster sustainable industry development and support innovation.”

The newly released Guidelines for Virtual Asset Trading Platform Operators will come into effect from 1 June 2023, setting out key expectations such as the secure custody of assets, segregation of client assets, avoiding conflicts of interest, and complying with cybersecurity standards and requirements.

The SFC will provide further guidance on new regulatory requirements, license application procedures, and transitional arrangements. The application forms for trading platforms will be available on 25 May 2023 and the SFC will begin accepting applications on 1 June 2023.

In response to the regulations, operators are encouraged to apply for a license if they can comply with the SFC’s standards. Those unable or unwilling to comply should arrange for an orderly closure of their operations in Hong Kong.

To protect investors, the SFC will continue working with the Investor and Financial Education Council to educate the public about the risks of trading on unregulated platforms. At the time of this announcement, the SFC has not approved any virtual asset trading platform to provide services to retail investors. Most platforms currently accessible to the public are not regulated by the SFC.

The market’s response to the new regulations has been mixed, with the Hong Kong concept token CFX(Conflux) experiencing a pullback.

Currently, Hong Kong’s SFC has licensed only two virtual asset trading platforms: OSL Exchange and HashKey Pro. With the new regulatory framework set to take effect in June, this marks a significant milestone in Hong Kong’s efforts to regulate the fast-growing virtual asset sector.


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Greenland Financial Holdings to Apply for Virtual Asset Trading License in Hong Kong

Greenland Financial Holdings, a subsidiary of Greenland Group, is planning to apply for a virtual asset trading license in Hong Kong, according to Shanghai Securities News.

The company’s move into the virtual asset space will further diversify its business portfolio and enhance its global influence, according to Jing Geng, Director and CEO of GreenLand Group and Chairman and President of GreenLand Financial Holdings.

Greenland Financial intends to establish a new company focusing on virtual asset trading, which will submit an application to the Securities and Futures Commission of Hong Kong (SFC). If approved, the company will aim to launch cryptocurrency trading, non-fungible tokens (NFTs), and carbon emission-related products. All plans are subject to the approval of the SFC.

Greenland Financial is committed to propelling the digital upgrade of multiple industries such as digital technology, finance, education, healthcare, and scientific innovation. Its goal is to build an international and diversified comprehensive industrial group that integrates data, technology, finance, and scenarios.

Inside sources from GreenLand Group indicate that based on the digital technology platform and financial holding platform established by GreenLand Digital Technology, a subsidiary of GreenLand Financial, the group has a wealth of offline assets and businesses that can expand into virtual asset operations. The group started planning for the virtual asset business as early as 2019.


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Hong Kong Central Bank Urges Crypto-Friendly Banking

The Hong Kong Monetary Authority (HKMA) has issued a circular on April 27th instructing authorized institutions, also known as “AIs,” to provide banking services to cryptocurrency firms while adopting a risk-based approach to Anti-Money Laundering (AML) measures. This circular comes as a significant move towards legitimizing cryptocurrencies in the region and bridging the gap between traditional banking and the rapidly growing digital assets industry.

The HKMA’s directive is part of its broader efforts to regulate the cryptocurrency market in Hong Kong, a region that has been grappling with the lack of clarity surrounding cryptocurrencies and their legal status. This directive requires authorized institutions to assess the risks associated with each corporate customer, including cryptocurrency firms, and implement appropriate measures to mitigate those risks.

This move is a critical step towards the integration of cryptocurrencies into the mainstream financial system in Hong Kong, where digital assets have long struggled to gain legitimacy. Cryptocurrency firms in Hong Kong have often faced significant challenges in accessing banking services, leading to operational difficulties, stifling innovation, and impeding growth. With this new directive, the HKMA aims to ensure that cryptocurrency firms can access necessary banking services, enabling them to operate efficiently and safely within the existing regulatory framework.

The HKMA has been actively working towards regulating the cryptocurrency market in the region, with plans to launch its own central bank digital currency (CBDC) in the coming years. The HKMA’s efforts to regulate the cryptocurrency market, coupled with its CBDC initiative, highlight the region’s increasing interest in the digital assets industry and its potential to transform the traditional financial system.

In conclusion, the HKMA’s directive to authorized institutions to provide banking services to cryptocurrency firms is a significant move towards legitimizing cryptocurrencies in Hong Kong. This directive will not only help bridge the gap between traditional banking and the digital assets industry but will also enable cryptocurrency firms to access necessary banking services, leading to operational efficiencies and growth. With the HKMA’s increasing interest in the digital assets industry, we can expect to see further developments in the coming years, ultimately leading to the integration of cryptocurrencies into the mainstream financial system.


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Hong Kong to Release Cryptocurrency Exchange Licensing Guidelines

The Hong Kong Securities Futures Commission (SFC) is set to release guidelines for cryptocurrency exchange licensing in May, as it moves to support trading services to retail investors from June 1. According to Bloomberg, the plans were confirmed by the SFC’s CEO, Julia Leung, who revealed that over 150 interested parties had provided feedback during the consultation process on the licensing regime.

The upcoming guidelines will likely include regulatory requirements for Anti-Money Laundering (AML) and Know Your Client (KYC) measures, among other considerations. A February 20 report by the SFC also highlighted these factors as important for regulating virtual assets.

While most prospective Virtual Asset Service Provider (VASP) licensees are still awaiting confirmation, some trading platforms have already received licenses from the SFC. Among them are OSL and Hashkey Group, according to Reuters.

However, not all trading platforms have chosen to stay in Hong Kong amid its ambitions to become a major crypto hub. Bitget, which boasts $1.4 trillion in assets in reserve, announced on April 24 that it would cease offering services to its Hong Kong customers when the VASP regime takes effect on June 1.

Despite this setback, the release of the licensing guidelines is expected to bring further clarity and regulation to the Hong Kong crypto market, while also providing a framework for legitimate trading platforms to operate under. This could help to boost investor confidence in the sector and support the city’s wider efforts to establish itself as a leading hub for digital assets and blockchain technology.

Hong Kong has already made significant strides in this area, with its Securities and Futures Commission becoming one of the first regulators to issue guidance on digital asset fund managers in November 2018. The city has also played host to a number of high-profile crypto events in recent years, including the Token2049 conference, which attracts blockchain industry leaders from around the world.

Despite this progress, however, Hong Kong still faces stiff competition from other global crypto hubs, such as Singapore and Switzerland. By introducing clear licensing guidelines and regulatory requirements for crypto trading platforms, the SFC may be able to help Hong Kong strengthen its position in this increasingly competitive field.


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Chinese Banks Embrace Crypto in Hong Kong

Hong Kong’s ambitious goal to become a leading crypto hub has opened an opportunity for many state-affiliated banks in China. The Chinese banks, despite a blanket ban on crypto-related activities in mainland China, are showing interest in building partnerships and onboarding regulated crypto companies in Hong Kong.

The Hong Kong arm of the major Chinese state-owned Bank of Communications is collaborating with several cryptocurrency businesses registered in the city. The bank is in talks to open accounts for regulated companies, according to a report published in The Wall Street Journal. This is a significant development in the world of crypto, where banks are traditionally hesitant to partner with companies in this industry.

In addition to the Bank of Communications, ZA Bank – Hong Kong’s largest virtual bank controlled by Chinese internet insurer ZhongAn Online P&C Insurance – will also act as the settlement bank for the crypto companies. These banks will together facilitate the depositing and withdrawal of fiat currencies, providing a vital service to crypto companies looking to operate in Hong Kong.

These banks’ involvement in the crypto industry is an excellent sign for Hong Kong, which has been trying to establish itself as a leading crypto hub for some time. At the start of the year, Hong Kong’s financial secretary, Paul Chan, clarified that the city is pushing to collaborate with more crypto firms in 2023. The government’s progressive crypto approach has attracted nearly 80 cryptocurrency firms interested in opening or expanding their business in the city.

The Chinese banks’ involvement in Hong Kong’s crypto industry is a surprise to many in the crypto ecosystem, considering China’s multiple crackdowns on crypto-related activities in mainland China. However, the Chinese banks’ move towards crypto in Hong Kong signals a new direction for the country’s approach to crypto.

As settlement banks, these Chinese banks will enable token deposits at authorized exchanges to be withdrawn in Hong Kong dollars, Chinese yuan, and U.S. dollars. This development will further strengthen Hong Kong’s position as a leading crypto hub, attracting more companies and investors interested in crypto.

The Chinese banks’ interest in Hong Kong’s crypto industry is a positive development, demonstrating the potential for regulatory clarity in the region. Additionally, this move could encourage other banks in the region to follow suit, strengthening Hong Kong’s position as a leading financial hub in Asia.

In conclusion, the involvement of Chinese banks in Hong Kong’s crypto industry is a significant development, demonstrating the potential for collaboration between traditional financial institutions and the crypto industry. This move could help build greater confidence in the crypto industry and attract more companies and investors to Hong Kong. As the city continues to embrace crypto, we can expect to see more developments in this exciting and rapidly evolving industry.


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Hong Kong Embraces Web3 Despite Crypto Market Volatility

In a recent blog post, Paul Chan, the financial secretary of Hong Kong, emphasized the need for the city to push forward with Web3 technology, despite the ongoing volatility in the crypto market. Chan proposed a strategy that focuses on proper regulation and promoting development to facilitate the steady growth of Web3. He noted that Hong Kong plans to prioritize financial security, prevent systemic risks, and focus on investor education and protection, as well as measures around anti-money laundering.

The government of Hong Kong first floated the idea of introducing a bill to regulate crypto in October last year. By February 2023, the Securities and Futures Commission (SFC), the local securities regulator, released a proposal for a regime for cryptocurrency exchanges set to take effect in June. The industry has faced a bear market and setbacks with exchange collapses and ongoing scrutiny from regulators. However, Chan compared the current situation to that of the early 2000s internet bubble, where the market participants became much calmer after the bubble burst.

Chan also emphasized the need for market participants to focus on competing in technological innovation, practical application, and value creation, contributing to improving the quality of the real economy. He called for the deeper development of blockchain technology, which can find wider application scenarios and solve more existing problems due to its characteristics and advantages of transparency, efficiency, security, disintermediation, de-platformization, and low cost.

Hong Kong’s approach to crypto regulation is in stark contrast to that of the United States, which has adopted a more hardline response to the industry. The difference in regulatory approaches has led to speculation that the crypto industry’s “center of gravity” will shift to Hong Kong. Cryptocurrency exchange Gate.io has already announced plans to launch a presence in Hong Kong following the local government’s planned 50 million Hong Kong dollar ($6.4 million) cash injection into Web3 in the city’s 2023-24 budget.

In a March 20 speech in Hong Kong, the secretary for financial services and the treasury, Christian Hui, stated that Hong Kong has been attracting “interest” from various crypto firms worldwide since October 2022. Chan concluded his post by acknowledging that the road of innovation and technological change has never been smooth sailing. He emphasized that even if the development direction is locked, the actual path has to be worked out step by step. He called for persistence in trying to find new solutions and new ways out to facilitate the steady growth of Web3 in Hong Kong.


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US Crypto Crackdown Could Push Industry to Hong Kong

The cryptocurrency industry has been at the forefront of technological innovation for quite some time, and the United States has been a leader in the sector. However, recent US government actions toward cryptocurrency regulation have raised concerns for some about the future of the industry in the country. While the US has been adopting a regulation-by-enforcement approach, there is a growing feeling among some that a significant amount of companies, developers, and investors will soon flock elsewhere to work in friendlier environments.

Kaiko’s CEO, Ambre Soubiran, recently spoke to The Wall Street Journal and suggested that the recent crackdown on crypto in the US will inadvertently help Hong Kong in its goal of becoming a major crypto hub. She noted that “The U.S. being more stringent these days than ever on crypto and Hong Kong regulating in a more favorable way…is going to clearly shift the center of gravity of crypto assets trading and investments more towards Hong Kong.”

Hong Kong has been moving in a different direction, with the government initially outlining plans in January 2023 to become a crypto hub by rolling out progressive regulation to support high-quality crypto and fintech firms. The Hong Kong Securities and Futures Commission (SFC) proposed a crypto licensing regime on Feb. 20, aiming to provide consumer protections without stifling innovation. According to a March 20 speech from Hong Kong’s Secretary for Financial Services and the Treasury, Christian Hu, over 80 virtual asset-related firms have expressed interest in setting up shop there, and 23 crypto firms have already indicated that “they planned to establish their presence.”

Bloomberg reported on March 28 that the Hong Kong Monetary Authority and SFA are set to hold a joint meeting on April 28 to help crypto firms set up domestic banking partnerships. Chinese banks, such as Shanghai Pudong Development Bank, the Bank of Communications, and the Bank of China, have reportedly started offering banking services to crypto firms in Hong Kong or made inquiries with crypto firms.

Soubiran also revealed in mid-March that Kaiko is looking to relocate the headquarters of its Asian-Pacific unit from Singapore to Hong Kong in response to the country’s friendly crypto stance. “What we’re seeing is a clear support for more clarity on the regulatory framework in Hong Kong,” she told Bloomberg in an interview, adding that “while we’re seeing an increased attractivity of Hong Kong in the region, we are relocating.”

The US government has become increasingly aggressive toward crypto since the collapse of FTX in November 2022, with Senator Elizabeth Warren even recently stating that they are building an “anti-crypto army.” However, the industry’s “center of gravity” could soon shift toward Hong Kong, as it rolls out progressive regulation and attracts more virtual asset-related firms to establish a presence there.


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Hong Kong Investors Launch $100M Fund for Web3 Startups

Hong Kong is once again opening up to the crypto market, as local investors launch a $100 million fund to finance the digital industry. The new fund, ProDigital Future, will focus on supporting early-stage Web3 companies oriented at the regional market.

According to a Bloomberg report from March 30, ProDigital Future has completed its half-year fundraising period with about $30 million in its pockets. However, it aims to raise $100 million by the end of 2023. The fund is led by Ben Ng, a partner at Hong Kong-based equity firm SAIF Partners, and Curt Shi, a long-time tech investor from China. Sunwah Kingsway Capital Holdings and Golin International Group have already invested in the fund.

Shi, the co-leader of ProDigital Future, told journalists that the fundraising process has been “relatively smooth,” although the investors are cautious about putting their money into crypto projects. ProDigital Future has attracted Hong Kong investors, as well as some family offices from China, Australia, and Singapore.

The fund aims to “embrace Hong Kong and its policies” while expanding its reach to Australia, Singapore, Europe, and the United States. ProDigital Future has already invested in six digital-asset projects, including metaverse company GigaSpace and One Future Football, a digital football league from Australia currently operating in stealth mode.

The launch of ProDigital Future comes amid growing regulatory efforts to oversee the crypto market in Hong Kong. In October 2022, the government of Hong Kong floated the idea of introducing its own bill to regulate crypto. On Feb. 20, Hong Kong’s Securities and Futures Commission released a proposal for a licensing regime for cryptocurrency exchanges, set to take effect in June.

The proposed licensing regime includes a necessary licensing procedure, demanding that potential market players meet several prerequisites, including the safe custody of assets, Know Your Customer, Anti-Money Laundering, and Combating the Financing of Terrorism regulations.

Despite these regulatory efforts, the launch of ProDigital Future signals a growing interest in the potential of the crypto market in Hong Kong and the wider Asia-Pacific region. With a focus on Web3 startups and a commitment to regulatory compliance, the fund aims to support the growth and development of the digital industry in the region.


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Chinese Banks Support Hong Kong Crypto Firms

Hong Kong-based crypto firms preparing for the new licensing regime for crypto exchanges in June have found unexpected allies in the region. Chinese state-owned banks, including Shanghai Pudong Development Bank, the Bank of Communications Co., and Bank of China Ltd., have reportedly started offering banking services to crypto firms in Hong Kong or have made inquiries with them, according to “people with knowledge of the matter” cited in a Bloomberg report published on March 27.

The Chinese banks’ support for Hong Kong’s crypto industry is noteworthy given the Chinese government’s ongoing ban on crypto-related activities. One source even claimed that a Chinese bank sales representative visited a crypto firm’s main office to pitch banking services.

“This development is encouraging for both the industry and the broader ecosystem, as it demonstrates a maturing understanding of the crypto sector by traditional financial institutions,” said a representative from a Hong Kong-based crypto firm.

It is unclear which crypto firms have been approached by the state-owned Chinese banks, as a spokesperson for a firm declined to comment. However, this move is seen as a positive step towards legitimizing crypto-related activities in Hong Kong.

In October 2022, the Hong Kong government proposed introducing its own bill to regulate crypto-related activities in the region. The Securities and Futures Commission of Hong Kong released a proposal for a regime for cryptocurrency exchanges on February 20, which is set to take effect in June. The new licensing regime will require crypto exchanges to obtain licenses from the Securities and Futures Commission and comply with regulations on KYC (know-your-customer), AML (anti-money laundering), and other areas.

Despite China’s ban on crypto-related activities, representatives from the China Liaison Office have reportedly been attending Hong Kong crypto gatherings. This could signal a shift in China’s approach to cryptocurrencies, as the country looks to tap into the growing market for digital assets.

The move by Chinese banks to offer banking services to crypto firms in Hong Kong also reflects a growing trend among traditional financial institutions to embrace cryptocurrencies. As more countries introduce regulations for crypto-related activities, financial institutions are starting to recognize the potential of digital assets and the need to integrate them into their existing systems. This move could help bridge the gap between the crypto industry and traditional finance, paving the way for greater adoption of cryptocurrencies.


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