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Hong Kong Proposal on Crypto Regulations Not Entirely Bullish

2 mins
Updated by Kyle Baird
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In Brief

  • The SFC has released crypto licensing proposals.
  • There are heavy restrictions on what tokens can be listed.
  • Crypto companies will have to jump through a lot of hoops in Hong Kong.
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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.

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.

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Martin Young
Martin Young is a seasoned cryptocurrency journalist and editor with over 7 years of experience covering the latest news and trends in the digital asset space. He is passionate about making complex blockchain, fintech, and macroeconomics concepts understandable for mainstream audiences.   Martin has been featured in top finance, technology, and crypto publications including BeInCrypto, CoinTelegraph, NewsBTC, FX Empire, and Asia Times. His articles provide an in-depth analysis of...