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Hong Kong's SFC sets rules for retail VA trading
Platforms must be licensed, ‘same business, risks, rules’ principle adopted for asset class
Darryl Yu 24 May 2023

In a bid to further cement the city’s status as a global virtual asset (VA) hub, Hong Kong’s Securities and Futures Commission (SFC) this week released its guidelines for VA trading platforms marketed towards retail investors in the city.

The regulatory requirements for VA trading platform operators, which are the result of the SFC’s consultations with industry stakeholders, cover areas ranging from safe custody to cybersecurity. The rules, which will come into effect on June 1, include measures that protect investors from fraud, ensure suitability in the onboarding process and enhance token-related due diligence.

“Providing clear regulatory expectations is the key to fostering responsible development,” states Julia Leung, the SFC’s chief executive officer. “Hong Kong’s comprehensive VA regulatory framework follows the principle of ‘same business, same risks, same rules’ and aims to provide robust investor protection and manage key risks, which will enable the industry to develop sustainably and support innovation.”

Operators of VA trading platforms will now need to apply for a virtual asset service provider (VASP) licence under the new framework next month. Already several entities have prepared to apply for a VASP license., including crypto exchanges OKX and BitMex, state-owned Chinese company Greenland Holdings and Hong Kong’s largest virtual bank, ZA Bank.

The bank plans to partner with VA exchanges in the city to enable retail investors to trade VAs by using fiat currency. “We are excited to offer the new investment opportunities brought by VAs to our users,” explains Ronald lu, its CEO. “VAs hold the potential to become a significant asset class in the future.”

Stephan Lutz, BitMEX’s CEO and group CFO, says: “The SFC's regulatory framework marks a significant milestone for our industry as it will provide standards for VAs that are crucial for this fast-growing asset class. We are delighted to see the administration's commitment to building a Web3 digital economy, one that begins with establishing clear guardrails and regulations. And we are optimistic that Hong Kong will achieve its ambition of becoming a world-leading Web3 role model city and potentially the Web3 hub for China in years to come.”

VA development in Hong Kong has been a rapidly growing sector that offers many opportunities and challenges for businesses and regulators. VAs are digital representations of value that can be transferred, stored or traded electronically, such as cryptocurrencies, tokens or digital collectibles.

Since late last year, Hong Kong policy makers have been proactive in supporting the development of VA usage in the city. In February 2023, the Hong Kong government offered an HK$800 million (US$102.1 million) tokenized green bond, the first such bond issued by a government globally. The bond’s lifecycle processes, including coupon payment and maturity redemption, will be digitalized and performed on a private blockchain network.

Moreover, the city has ramped up efforts to develop its central bank digital currency, the e-HKD. The Hong Kong Monetary Authority recently selected 16 firms from the financial, payment and technology sectors to participate in the first round of pilots in 2023 for offline payments and tokenized deposits.

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