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Hong Kong Securities and Futures Commission changing its previous "opt-in" approach

Nov 03, 2020

Hong Kong’s Securities and Futures Commission (SFC) will stipulate the regulations of all cryptocurrency trading companies operating in Hong Kong’s jurisdiction.

The following activities is an extension of the crypto regulations introduced by the SFC in November last year. Hong Kong is considered as the base of many major cryptocurrency exchanges, but until November 2019, they were not regulated by the financial regulator, as digital assets did not fall under the category of securities. This allowed bad actors to deceive investors without any examination of a regulatory entities.

Many regulators around the world are still assessing whether and how they should regulate the cryptocurrency industry, and the investor protection and preventing money laundering are particular concerns. The proposed legislation covers aspects like custody, know-your-customer requirements, anti-money laundering rules, and market manipulation, some of the key concerns for the crypto industry.

Main objective with new regulatory framework is to create successful environment to enjoy the benefits of innovation, but at the same time tackle the risks to investors which some financial technologies give rise to. New framework is clearly in the public interest to enable investors to choose to participate in properly regulated virtual asset trading platforms. The approach by the regulator is also welcomed by market players in the region.

Previously new rules were established as ‘opt-in’ which meant that digital currency trading platforms could choose whether or not to subject their operations under the SFC’s regulatory. However, the country’s securities regulator wants every digital currency trading platform to be registered with them.

This restriction, same as under the current legislation if a platform operator is really set to operate fully off the regulatory scope it can do so by ensuring that its traded crypto assets are not within the legal definition of a security.

The Hong Kong governmental institutions will introduce new licensing measures under its anti-money laundering legislation and all crypto trading platforms operating in Hong Kong or offering services in the region will be required to obtain the license.

At the moment many major cryptocurrency exchanges are based and operating from Hong Kong, but are licensed by other crypto-friendly jurisdictions. The vast majority of these companies did not opt-in for the existing regulatory frameworks of the local jurisdiction, but SFC did not issue a full license to any crypto exchange, it only agreed to issue a license to few companies.

Hong Kong is very promising financial hub and could be preferable jurisdiction to establish crypto exchange platform, but it would be much clearer once the first full license is issued.

While the situation in Hong Kong is still not clear Offshorelicense team could offer alternative solutions and would gladly assist you with obtaining a Crypto License in Switzerland or Virtual Currency Provider License in Estonia.

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