The Hong Kong Securities and Futures Commission (SFC) is seeking public feedback on a newly proposed licensing regime for cryptocurrency exchanges that will take effect from June 2023.
The main consideration of the public consultation window is whether to allow licensed exchanges to serve retail investors in the country and what steps should be taken to provide some “strong investor protection measures.”
The SFC announced a consultation process on February 20, outlining a new licensing regime for the industry proposing that all centralized cryptocurrency trading platforms operating in Hong Kong must be licensed by the regulatory body.
The SFC’s proposed regulatory guidelines are based on existing requirements for licensed securities brokers and automated trading venues, while modifications have been made to some existing prerequisites.
A statement from SFC CEO Julia Leung highlighted the “new chaos” in the cryptocurrency ecosystem and the collapse of industry players like FTX as the main reason for clear regulatory guidelines for the industry with investor protection above:
“Like our philosophy since 2018, the proposed requirements for virtual asset trading platforms include strong measures to protect investors, according to the principle of ‘same business, same risk, same rules.'”
According to the announcement, any person or business that provides cryptocurrency-related services must apply for a license from the SFC. Furthermore, some requirements are set for cryptocurrency exchanges and service providers.
This includes a host of prerequisites, including the safe custody of assets, Know Your Customers, conflicts of interest, cybersecurity, accounting and auditing, risk management, Anti-Money Laundering / counter-financing terrorism and Prevention of market abuse.
Related: Hong Kong watchdog aims to limit retail traders for liquid products
Businesses intending to continue operating and applying for licenses are encouraged to review and modify existing systems and controls to meet the requirements of the upcoming regime. Exchanges and service providers that do not intend to apply for a license should prepare to close their business in Hong Kong.
The Hong Kong SFC also intends to publish and maintain a list of licensed cryptocurrency exchanges and service providers to inform the general public about the registration status of different companies.
As previously reported by Cointelegraph, the Hong Kong-based financial service provider has begun to question the licensing requirements following the amendment of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance in December 2022.