Hong Kong launches new regulatory framework for crypto exchanges

Hong Kong launches new regulatory framework for crypto exchanges

Hong Kong’s SFC (Securities and Futures Commission) announced a new regulatory framework for virtual asset trading platforms, commonly known as crypto exchanges.

In 2018, the SFC announced a conceptual framework for potentially regulating virtual asset trading platforms, which aimed to gain a better understanding of whether it is appropriate to regulate them under the SFC’s existing powers.

After an in-depth examination of the unique technical and operational features of these platforms, the SFC finally concluded that some could be regulated.

The new framework covers the key investor protection concerns, safe custody of assets, KYC and AML/CFT requirements, market manipulation, accounting and audit, risk management and conflicts of interest management.

It also offers guidance on hot vs cold wallet (limiting cold wallet holdings to 2% of client virtual assets), forks and airdrops.

The SFC will also make sure that platform operators can only provide services to professional investors, and then only to those who can demonstrate that they already have sufficient knowledge of investing in this area. Licensed platforms will be required to insure themselves against the risk of virtual assets being lost or stolen.

As the SFC only has the power to regulate platforms that trade virtual assets that are legally classified as “securities” or “futures contracts”, platform operators will ultimately be opting-in to the regulatory framework by deciding whether or not to offer such virtual assets.The majority of the more familiar crypto assets, including bitcoin, offered by platform operators are not securities.However, if a platform operator offers just one ‘security token’, it would fall […]