Is Hong Kong’s new licensing regime bad news for crypto?

  • 12 November 2020, Thursday, 11:06
Is Hong Kong’s new licensing regime bad news for crypto?
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According to some, the recent amendment by the Hong Kong Securities and Futures Commission (SFC), the one that requires all ‘professional investors’ to apply for licences, is not as friendly to Hong Kong-based crypto-exchanges such as OKEx, Huobi and FTX, as initially perceived.

Here, a ‘professional investor’ is defined as a company that manages 40 million HKD in assets or an individual with 8 million HKD in assets.

According to Chinese reporter Colin Wu, although OKEx and Huobi have not been backdoor listed by the government, they are rumored to have been investigated by the Chinese police regarding their funding of the Hong Kong listing.

According to Wu, Hong Kong’s policy on crypto is ‘very conservative’ and uncompetitive and the main reason behind the attention given to it is the fact that Hong Kong often acts as a testing area for Mainland China’s policies.

This view is contrary to the general perception of Hong Kong as a crypto-hub, a city with its own Bitcoin Associated, Ethereum community, Consensys regional Headquarters, Crypto-ATMs, as well as several exchanges and OTC markets.

The TL;DR is that it's too early to tell here, and that the obvious easy takes are likely missing some of the texture of the situation.

FTX is incorporated in Antigua but will definitely be monitoring this!

— SBF (@SBF_Alameda) November 12, 2020

Sam Bankman-Fried (SBF), CEO of FTX, addressed these comments by stating that “it is too early to tell how things will play out,” adding that he is monitoring the situation in Hong Kong closely, despite the fact FTX is incorporated in Antigua.

There is also an alternative opinion here, one that suggests that these laws may actually be favorable to the crypto-industry overall as Hong Kong increases compliance with the FATF rule.

Clara Chiu, Director of the Fintech Unit at the SFC, referred to the New Virtual Assets Regulatory Framework as a means to supervise centralized trading platforms with content requirements similar to the existing regime.

The expectation is that these platforms will only offer services to ‘professional investors’ at first, stating that,

“We expect them to properly segregate client assets from their own assets. They should ensure the keys of the wallets are properly managed and they should also have in place measures to deal with possible market manipulation activities on their platforms. If serious breaches are committed there will be intervention and restrictions on their business.”

She also added that she believes that the proposal will be beneficial for the Virtual Asset ecosystem in Hong Kong.

Such a move offering services to professional investors over retail investors has been perceived by some as a ‘testing ground’ for crypto by the government.

The generous answer is that if there are no blowups then the SFC could introduce product suitability tests for crypto, as exists for traditional investments.

— Jame DiBiasio (@JameDiBiasio) November 12, 2020