Hong Kong Securities and Futures Commission Regulates Crypto Exchanges, Bitcoin Futures Not Allowed


  • Hong Kong’s Securities and Futures Commission (SFC) publishes new rules for crypto exchanges to operate under license
  • Some crypto exchanges to be treated like securities brokers
  • No need for a license if the digital asset is not a security
  • Allowing trading of Bitcoin futures “may well be conducting an illegal activity”.

New rules for cryptocurrency exchanges are here.

A potential step was taken by Hong Kong’s financial regulator to improve the regulation and standards within the cryptocurrency market. As it publishes new rules for crypto exchanges can now apply for an operating license.

Market watchdogs around the world are still trying to decide the best way to regulate cryptocurrencies. Should they take a ‘hands-off' approach or apply stern regulations. These efforts have ramped up since Facebook’s plan to launch its stablecoin Libra.

Hong Kong, not only home to dozens of crypto exchanges but some of the world’s largest, is now trying to provide regulatory clarity.

These virtual asset trading platforms have been largely escaping regulation until now. Because most virtual assets traded on the platform were technically not securities. Ashley Alder, chief executive of Hong Kong’s SFC Chief Exec said in a speech:

“After an in-depth examination of their unique technical and operational features, we concluded that some could be regulated by us.”

Some Crypto Exchanges to be Treated like Securities Brokers

While some of these platforms welcome regulators to give them oversight, others prefer to work in the shadows. Operating under regulatory scrutiny will help bring trust to the marketplace.

These rules will cover know-your-customer (KYC) requirements, anti-money laundering (AML), market manipulation, and aspects of custody.

The initiative was first announced a year ago at the 2018 Fintech Week in Hong Kong, including a “sandbox” for crypto exchanges.

Since then, the head of the SFC said, they have met with several operators to see whether they are capable of operating in a regulated environment. And after an in-depth examination, they found some can be regulated by the agency.

Exchanges can now apply for an operating license to be fully regulated starting today. These new rules draw on the standards the agency has always come to expect of conventional securities brokers.

No Need for License if the Digital Asset Not a Security

Hugh Madden, chief executive of BC Group, a digital asset trading company said this is a “seminal moment for financial services” and “points to increased acceptance of digital assets as new types of financial instruments.”

According to SFC, if an exchange wants to be licensed, then it must provide services to professional investors only and further have an insurance policy to protect its clients in the event of digital assets getting stolen or lost. Such exchanges also have to use an external market surveillance mechanism.

However, if the assets are not security like Bitcoin, crypto exchanges do not need licenses to operate.

In a separate statement, the SEC warns investors from investing in Bitcoin futures in Hong Kong as then they “may well be conducting an illegal activity”.

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