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Hong Kong Watchdog Reveals New Cryptocurrency Exchange Regulations
November 06  |  2 min read

Hong Kong Regulator Publishes New Framework for Crypto Exchanges

The COIN360 Editorial Team

Hong Kong’s Securities and Futures Commission (SFC) has just published a position paper containing regulations for virtual asset exchanges. According to the document, digital trading platforms are treated as traditional brokers if they offer securities. Digital trading platforms offering security tokens must now be licensed and should apply to become regulated exchanges starting today.

Dozens of virtual asset trading platforms, including the world’s largest, are based in Hong Kong. New rules apply only to those platforms that trade virtual security assets or tokens. Exchanges that only trade non-security virtual assets or tokens do not fall within the SFC’s regulatory remit. As claimed by Ashley Alder, Chief Executive of the Securities and Futures Commission, Bitcoin falls outside the definition of a security. Platforms that decide to stay unregulated should ensure the watchdog that they do not trade securities or futures contracts.

A set of standards that is now applied to digital platforms trading securities is similar to the one adopted by the SFC for licensed securities brokers and automated trading venues. Platforms willing to be licensed under the SFC rules should meet a set of regulatory requirements:

  • Conduct robust KYC and AML procedures;
  • Offer products to professional investors only;
  • Store no more than 2% of the exchange’s funds in hot wallets;
  • Insure funds in the event of hacks or breaches;
  • Seek the Commission’s approval prior to altering products or services;
  • Conduct an independent audit and file reports annually;
  • File monthly reports with the Commission.

In addition, the Securities and Futures Commission warned virtual asset futures contract providers. As the document reads, “any person who operates a platform that offers or trades ’futures contracts’ is required to be licensed or authorised under the SFO unless an exemption applies.”