Hong Kong released new regulations on Thursday allowing authorized cryptocurrency exchanges to provide services to retail users, bucking the trend of tightening regulations around the world following last year’s market crisis.
After high-profile failures like trading platform FTX, which prompted the United States to crack down on a sector worth more than $1 trillion, the Chinese financial hub is outpacing regulators worldwide to establish ground rules for cryptocurrencies.
Since 2021, China has strictly prohibited cryptocurrency trading; however, Hong Kong, which has a different legislative system, allows trading with some restrictions. As a result, private investors in Hong Kong must use unlicensed sites.
Following a one-year transitional period, all Hong Kong cryptocurrency exchanges will be required to obtain licenses and be permitted to accept retail customers under the new regulatory framework that was announced on Thursday.
Despite all of the uncertainties, (the sector) will basically continue. The city’s director of financial services and treasury, Christopher Hui, told that these operations must be permitted in a controlled manner.
The market is “generally supportive” of the regime, according to Hong Kong’s securities regulator, who also noted that it has “already received a few applications.”
The emphasis of the new regulations is on measures to protect investors, such as requiring exchanges to verify their clients and reduce their risk exposure, as well as limiting trade to “large-cap” tokens like bitcoin.
As it aims to limit retail participation in cryptocurrency, regional rival Singapore is moving in the opposite direction.
Lennix Lai, OKX’s global chief commercial officer, noted that Hong Kong is making significant progress and inspiring trust among industry players.
Regulators expressed their want to award the first licenses swiftly.
Lennix Lai, OKX’s global chief commercial officer, noted that Hong Kong is making significant progress and inspiring trust among industry players.
Regulators expressed their want to award the first licenses swiftly.
Etelka Bogardi, partner at Norton Rose Fulbright, claims that some cryptocurrency companies have had difficulty gaining access to conventional banking facilities or recruiting corporate specialists who have been mandated.
The lack of stablecoins, cryptocurrency derivatives, and staking products on platforms, which limits the options available to retail investors to spot trading, may also reduce Hong Kong’s market appeal.
– ‘Financial bandwagons’ –
The new legislation, according to a well-known activist investor in Hong Kong, supports speculation and gives credibility to a risky industry.
According to David Webb, a former investment banker, Hong Kong has a history of hopping on financial bandwagons just as the wheels are coming off.
The government may claim that the new crypto system is comparable to that of traditional finance, but according to Webb, this “analogy breaks down” because most cryptocurrencies, unlike stocks or futures on commodities or firms, lack an intrinsic worth.
There is no justification for (the government) encouraging people to wager on someone else paying more for something that has no intrinsic value, according to Webb.
Last year, the city reported that HK$1.7 billion ($217 million) was lost to crypto-related scams, which authorities blamed on criminals exploiting the public’s lack of sector understanding.
Before accepting a client, the new regulations require exchanges to undergo a “holistic assessment” of the client’s knowledge of digital currencies, but they don’t provide any further details.
