Hong Kong unveils crypto rulebook: Retail trading will be allowed

Hong Kong's securities regulator has completed its consultation paper on a proposed regulatory regime for cryptocurrency trading platforms. The city-state's new rulebook will allow retail investors, starting next month, to trade certain cryptocurrencies on licensed platforms.

Hong Kong's Securities and Futures Commission published a consultation document in January on its proposed regulatory framework for crypto trading platforms. The new rules will be implemented in June, and all crypto platforms must be licensed by SFC.

The new regulatory regime also proposed that retail investors in the City could trade "large-cap tokens", provided they adhered to safeguards like knowledge tests, risk profiles, and reasonable exposure limits.

The watchdog published the conclusions of its consultation paper on Tuesday. The SFC reported that it received 152 submissions in writing from industry and professional associations as well as professional and consulting firms, market participants, and licensed corporations.

"Respondents generally approved of the proposed requirements. However, some sought clarification. The SFC has clarified or modified some of the proposed requirements after taking into account the many comments and suggestions made by respondents.

The SFC stated that a "significant number" of respondents approved the proposal to allow retail traders to trade certain crypto assets. The coins must be included in two independent, investible indexes, at least one of which has experience in the traditional financial industry.

The agency also stuck to its plan to issue licenses to crypto exchanges. It did note that licensed platforms must "comply with a wide range of robust investor-protection measures covering onboarding and governance, disclosure, token due diligence, and admission before providing trading services for retail investors."

The regulations also require that crypto exchanges have a minimum of 5 million Hong Kong Dollars ($640,00). They must also submit to the SFC a monthly report detailing the platform's liquidity capital, bank loans, credit facilities, and advances, as well as a profit and loss analysis.

"Operators who are willing to comply with SFC standards and are operators of virtual asset trading platforms are welcome to apply for licenses."Those who don't plan to comply with the SFC's standards should close their business in Hong Kong.

The guidelines prohibit "gifts" that are intended to encourage retail investments. This clause is likely to include airdrops. Airdrops are a marketing strategy that blockchain-based projects use, which involves the distribution of free tokens.

Hong Kong's new regulation regime comes at a time when the city is pushing for Web3 and Blockchain to position itself as an Asian hub for digital innovation. Other regulators have taken a more aggressive stance against the crypto industry.

Malaysia recently ordered Huobi Global to stop all activities after it failed to register in the country. According to an official announcement, the company was directed to disable its mobile applications and website on Apple Store and Google Play.

In another instance, Gemini's newly launched derivatives market was not authorized by the Philippines Securities and Exchange Commission.

Since the collapse of FTX, regulators in the US have also been taking action against crypto. This includes the Securities and Exchange Commission, or SEC, and the Commodity Futures Trading Commission, or CFTC. The agencies have taken enforcement action against Bittrex as well as Nexo, Binance Coinbase, and Kraken.