Hong Kong Regulator: Should Licensed Crypto Exchanges Serve Retail Investors?

The Securities and Futures Commission (SFC) of Hong Kong has launched a consultation on new licensing requirements for virtual asset trading platforms.

Under the proposed regime, all centralized crypto exchanges operating in Hong Kong or marketing to Hong Kong investors will need to be licensed by the SFC, with the new rules set to take effect from 1 June 2023.

The proposed regulatory requirements for exchanges are based on the existing regime under the Securities and Futures Ordinance and, according to the SFC, are similar to those for licensed securities brokers and automated trading venues.

The SFC is seeking views on whether licensed operators:

• should be allowed to cater to retail investors?
• what additional measures would be required to protect investors?

The SFC plans to publish lists on its website to inform the public of the different regulatory statuses of crypto exchanges and will continue to work with the Investor and Financial Education Council to enhance investor education for the Hong Kong public.

The SFC advises crypto exchanges that plan to apply for a license, including pre-existing platforms, to begin reviewing and revising their systems and controls to prepare for the new regime.

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They also warned exchanges that do not plan to apply for a license to start preparing for an orderly closure of their business in Hong Kong.

Interested parties have until 31 March 2023 to submit their comments to the SFC.