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Hong Kong Crypto Businesses Must Comply With Stifling Restrictions

2 mins
Updated by Geraint Price
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In Brief

  • Hong Kong will accept new crypto applicants from June 1.
  • Licensees must separate and guarantee access to customer assets.
  • Overall, the industry is bullish about the development.
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Hong Kong’s Securities and Futures Commission (SFC) will require firms intending to locally offer retail crypto products to comply with asset custody and segregation regulation.

The agency announced the new regulations following a recent consultation.

Hong Kong Retail Investors Cannot Hold Stablecoins

Early crypto license applicants can only list Chainlink, Cardano, Polygon, Avalanche, Solana, Bitcoin, Ethereum, Bitcoin Cash, Litecoin, and Polkadot. These coins appear on at least two of the major crypto indexes from Galaxy, Bitwise, WisdomTree, 21Shares, and Nasdaq.

Licensees may not advertise specific crypto assets or engage in proprietary trading or lending. They must also employ measures to prevent money laundering and terrorism financing.

The approved regulations will prevent traders from holding stablecoins until the SFC tables new regulations. Investors cannot earn yields similar to customers of Gemini Exchange’s Earn product.

So far, the SFC has not yet greenlighted applications for companies wishing to come under the new regime.

The SFC will gazette virtual asset platform requirements on May 25 to become effective on June 1.

SFC Regulation Welcomed Despite Restrictions

Hong Kong received plaudits from the crypto industry when it announced its willingness to embrace crypto regulation, especially amid a reluctance from the U.S. to consider a new framework. 

Binance CEO Changpeng Zhao has argued that “bad restrictive” regulations are better than no regulations. He also criticized enforcement without clear rules.

China’s hostility towards crypto has seen many firms consider Hong Kong, including research firms Kaiko and crypto exchange Bybit. Bybit wants to make Hong Kong the base of its Asian operations. 

American crypto entrepreneur Cameron Winklevoss predicted the next bull run would start in Asia.

Brian Armstrong, the CEO of the largest crypto exchange in the U.S., Coinbase, warned that the U.S. would get left behind amid regulatory developments in the European Union, Hong Kong, and the U.K.

Hong Kong Crypto Industry Growth Before New Regulation
Hong Kong’s Transaction Volume Grew 9.5% in 2022 | Source: Chainalysis

However, some of the initial excitement abated during the consultation process, which saw lawmakers from the Asian region err on the side of caution. 

Alessio Quaglini of custodian HexTrust has criticized a requirement that a wholly-owned subsidiary of the licensee must hold customer assets.

He argued that customer assets should be separate from an exchange. Companies have also questioned the cost of licenses and whether a crypto firm can operate profitably in the Asian region.

For BeInCrypto’s latest Bitcoin (BTC) analysis, click here.

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...