Hong Kong: new license for trading crypto assets

Hong Kong: new license for trading crypto assets

Hong Kong is actively looking at cryptocurrency activities and developing laws to regulate this sphere as much as possible. The plan is to oblige all providers of cryptocurrency services to obtain a license for trading crypto assets in Hong Kong. There are also plans to tighten regulations aimed at combating money laundering.

What preceded it

Hong Kong used to be the base for major crypto exchanges such as Binance and FTX. They were attracted by the local government's reputation for non-interference and close ties to China.

Now the licensing is on a conditionally voluntary basis and primarily affects crypto platforms. Once approved, they can only work with clients with a portfolio of $1 million or more. Many cryptocurrency operators were not satisfied with this and they left for other countries. Large companies also relocated. For example, FTX, which was not bankrupt at the time, moved to the Bahamas.

The rest of the crypto companies are subject to laws depending on the type of cryptocurrency they work with. For example:

  • persons engaged in the exchange of cryptocurrencies must obtain an SFC License (securities transactions);
  • companies that exchange cryptocurrency for fiat money are required to get an MSO License.

The current state of affairs did not satisfy the government, and the authorities began to work on laws that would regulate crypto activities. At the same time, Hong Kong, being a special administrative region of the People's Republic of China, is obliged to take into account the position of China, which has outlawed cryptocurrency.

Features of the new law

The new law, which passed its first reading in June 2022, raises mixed opinions. It is planned to oblige all virtual service providers to obtain a license for crypto activities. The penalty for its absence will be a fine of $645,000 and imprisonment.

To obtain a license to trade crypto assets in Hong Kong, the company will have to apply to the Securities and Futures Commission (SFC) but only if it can several conditions. Among them are developing measures aimed at combating money laundering, fraud, and terrorist financing.

The SFC will also monitor:

  • the operation of the crypto business;
  • the maintenance of financial records;
  • transparency of cryptocurrency operations;
  • implementation of mechanisms aimed at preventing market manipulation and conflicts of interest;
  • mechanisms that will offer companies to protect the money of the customers and confidential information.

Additionally, it was indicated that only large investors would be able to trade cryptoassets. As a result, experts began to predict that small players would finally leave the market.

But on October 31, 2022, there was information that the authorities still plan to allow individuals to trade in cryptocurrencies. However,  the mechanism and other details are not clear as public consultations are planned first. Perhaps, it will not be allowed to work with individual crypto coins (such as Bitcoin, Ethereum, etc.). But it possibly can be allowed to work with the listing of large tokens.

What to expect

Although cryptocurrency activity in Hong Kong is in limbo, there is every reason to believe that it will be a developed cryptocurrency center with clearly defined rules. They will protect crypto companies and investors alike, which is good for business development.

How to operate a crypto business in Hong Kong

To operate a cryptocurrency business in Hong Kong in 2023, contact IT-OFFSHORE experts.

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