Hong Kong govt to regulate exchanges trading non-security tokens

By Sunniva Kolostyak

The government of Hong Kong is proposing a new licensing regime to regulate virtual asset exchanges trading non-security tokens, such as crypto assets, widening the supervisory net on trading platforms.

Unveiling the proposal at Hong Kong FinTech Week, the Securities and Futures Commission (SFC) of the HKSAR government said the new regulatory framework requires all platforms that trade any types of crypto assets to apply for an SFC license.

SFC can then ensure compliance, monitor operations, investigate irregularity and enforce requirements and standards from global AML watchdog, the Financial Action Task Force.

Clara Chiu, Director, Licensing and Head, FinTech unit, Intermediaries at the Securities and Futures Commission, said in her keynote that the licencing and control requirements of these platforms will be very similar to the existing regime, announced last year.

“For example, at the initial stage, the licenced platform should only offer services to professional investors. We expect them to properly segregate client assets from their own assets. They should ensure the keys of the rollers are properly managed. They should also have in place measures to deal with possible market manipulation activities on their platforms.”

Chiu added: “If serious breaches are committed, there will be intervention and restrictions on their business.”

In the existing regulatory framework, the SFC license only applied to exchanges trading security tokens or a mixture of securities and non-securities tokens, and operating Hong Kong or targeting Hong Kong investors.

Alongside the proposal for a licensing regime, the Hong Kong government is issuing a consultation paper to further regulate centralised virtual asset trading platforms in the market, aiming to include centralised automated trading platforms for non-security tokens.

In the future, the government’s proposed regime and the existing regime will work in parallel. According to Chiu, this means that virtual asset platforms that trade only non-security tokens should be under the proposed regime.

“Those that trade security tokens, or a mixture of a security and non-security tokens, should continue to be regulated under the existing regime. They are not required to apply for a new licence.

“As the proposed regime will be under consultation, even if is agreed upon, the proposal will still need to go through the legislative process. This may take some time. We believe the Hong Kong government’s proposal will be beneficial to the virtual asset ecosystem in Hong Kong,” Chiu concluded.

At the conference, the Hong Kong Monetary Authority also announced that it will implement a data strategy, launching a Commercial Data Interchange (CDI).