Hong Kong’s SFC to Accept Crypto Exchange License Applications from June 1

The Hong Kong Securities and Futures Commission (SFC) has stated that beginning June 1, it would accept applications for licenses from cryptocurrency trading platforms. This decision follows the SFC’s February consultation on policy suggestions, which garnered public comment. According to the regulator, licensed virtual asset providers will be permitted to service retail investors as long as they examine the investors’ comprehension of the risks involved.

The SFC’s policy recommendations also target stablecoin trading, recommending that they be prohibited from retail trade until the jurisdiction’s proposed laws for this asset class are in place. Furthermore, the guidelines expressly ban the distribution of crypto “gifts” that induce retail customers to invest, such as airdrops.

Under the new criteria, platform operators will be responsible for undertaking due diligence, with the guidelines emphasizing that being listed for trading involves more than just being included in two acceptable indices. Crypto exchanges must keep a minimum capital of HKD 5,000,000 ($640,000) at all times, according to the guidelines. They will also be obliged to produce several financial reports to the SFC on a regular basis, including available and required liquid capital, bank loan summaries, and profit and loss analysis. Tokens permitted for trade on regulated exchanges must have a “track record” of at least 12 months, according to the rules.

The guidelines also describe procedures for retail investors who use trading platforms, such as token due diligence. Even if the token is already listed on another site, token listing will necessitate separate smart contract audits. Platform operators are not required to nominate independent external members to token review committees as long as conflicts of interest are appropriately managed.

Platforms can separate client assets through an escrow arrangement or by placing cash aside within the licensed platform to protect them. The SFC rejected proposals to use third-party custodians for virtual asset storage, noting the lack of a regulatory framework for such custodians as a barrier to monitoring and enforcement.

The SFC will conduct a separate evaluation of derivatives that are deemed essential for institutional investors. Concerning the Financial Action Task Force’s travel regulation, the SFC will accept the filing of required information on crypto transactions to the beneficiary institution as soon as possible following the transfer, until January 1, 2024.

The amended guidelines, which provide more clarity on anti-money laundering regulations & platform fine criteria, will take effect on June 1.