Hong Kong Proposes Controls for Crypto Service Providers

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Hong Kong's Securities and Futures Commission has released a draft proposal of rules for virtual asset trading platforms, as well as a licensing regime for crypto service providers. All platforms seeking a license are required to start reviewing and revising their systems and controls for the new regime, while service platforms that do not intend to apply for a license should begin preparing for an orderly closure of their business in the jurisdiction. Furthermore, Hong Kong plans to regulate stablecoins starting in June this year. The new licensing regime will go into effect on June 1, while the consultation period for public feedback ends on March 31.

Hong Kong's Amendment, effective on April 1, 2023, will require licensing for all crypto exchanges in Hong Kong. Only Hong Kong-based companies are eligible for licensure, and professional investors may trade on exchanges. The licensing application process will treat cryptocurrencies as "securities" in line with Hong Kong's regulatory attitude, and the amendment excludes over-the-counter (OTC) transactions. Native token-issuing platforms may also have to be licensed. The Amendment provides a pathway for regulatory compliance and is a big step towards making Hong Kong a regional hub for the crypto industry.

The Amendment grants the Securities and Futures Commission of Hong Kong direct regulatory control over cryptocurrency exchanges that are based there.