Update: The new regulatory framework has been published. They cover the aspects mentioned below, including know your customer checks, anti-money laundering measures, and custody. The SFC detailed that crypto exchanges must provide their users with insurance that covers assets in cold and hot storage.
Hong Kong’s Securities and Futures Commission (SFC), its financial regulator, is set to publish a framework for cryptocurrency exchanges later today, November 6.
According to the SFC’s chief executive officer Ashley Alder, the cryptocurrency exchanges operating in Hong Kong – which include some of the largest in the world by trading volume – haven’t largely been affected by regulations so far as cryptoassets aren’t defined as a security.
The new regulations Hong Kong’s regulator is preparing to unveil reportedly draw on the standards the SFC has for conventional securities brokers, and will cover various aspects including know your customer requirements, anti-money laundering rules, custody, market manipulation, and other issues “specific to the cryptocurrency industry.”
As first covered by Reuters, Alder initially announced initiatives on cryptocurrency last year during Hong Kong’s Fintech Week, and these included a “sandbox” for exchanges and the regulator to discuss potential ways for trading platforms to be overseen. Since then, Alder said:
We met with a large number of crypto platform operators to see … whether some platforms were in fact capable of operating in a regulated environment.
The regulator’s chief executive added that after an “in-depth examination” of these exchanges’ technical and operational features, the SF concluded “some could be regulated by us.” Exchanges can now apply to be regulated.
Cryptocurrency trading platforms won’t be covered by regulations, unless they trade an asset considered a security, which according to Alder doesn’t include bitcoin. A second statement is expected to be issued later today, emphasizing the risk of trading crypto futures.
Per Alder, the statement will warn trading platform offering cryptocurrency futures they may “well be conducting an illegal activity” under Hong Kong’s laws.