Hong Kong lawmakers have proposed new legislation to regulate the cryptocurrency space, as well as a new licensing regime for cryptocurrency service providers. The proposed cryptocurrency law will accelerate Hong Kong’s entry into the virtual asset market while also bringing its providers into the mainstream of the island’s financial services sector.
Amendments to Align the Cryptocurrency Sector with Traditional Finance
Amendments to the Hong Kong cryptocurrency market have been introduced and are now awaiting approval from members of China’s special administrative region’s Legislative Council. The Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022, which was published in the government gazette in June, needs to be approved in two separate readings before it becomes law.
The draft’s authors intend to revise the bill in order to include licensing for virtual asset service providers (VASPs) and enrollment for precious metals and stone dealers. The bill’s goal is to use the force of the law to impose tax evasion and counter-terrorism financing commitments on businesses in the two preceding sectors.
For example, if a cryptocurrency company wants to launch a trading platform, it must first obtain a license from the Hong Kong Securities and Futures Commission (SFC) and meet a number of requirements. The SFC will be charged under the new legislation with ensuring that VASPs demonstrate their asset listing and trading policies, proper financial reporting and disclosure, and the establishment of relevant mechanisms to avert market manipulation, abusive activities, and conflicts of interest.
According to Andrew Leelarthaepin, Bitstamp’s managing director for the Asia Pacific, in a South China Morning Post article, the amendments are nearly identical to those that would apply to traditional financial institutions, and they should meet comparable standards. He considers crypto firms to be a part of Hong Kong’s financial framework and states: Simply put, VASPs can expect to be held to the same regulatory standards as our institutional clients. VASPs are recognized by the law as peer organizations in the financial services sector.
The proposed regulatory and statutory measures represent an important step toward mainstreaming cryptocurrencies in Hong Kong’s financial sector. This is significant for two reasons. For one thing, regulating cryptocurrencies within the context of traditional financial services helps to protect investors. They function as customer protection measures, increasing investor participation and confidence in the ecosystem.
Second, traditional investors feel very safe when they are operating in a regulated space with a set rules-based system developed by financial regulators. As a result, many institutions will wait for more regulatory clarity before venturing into new markets.
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