Potential Boost for Hong Kong’s Crypto Regulation Through New Licensing Proposals
Hong Kong’s SFC is probing the potential of a new licensing framework for cryptocurrency over-the-counter (OTC) services and seeking industry feedback on the proposal. The move is part of a broader attempt to curb the city’s virtual asset sector’s further growth.
In the past, the Customs and Excise Department (C&ED) was in charge of OTC regulations, and it seems that the SFC may be playing a more proactive role with the information that further discussions suggest. This government body aims to bring its regulation efforts to high-profile incidents exposing regulatory drawbacks.
For the regulatory measures they will be putting forth, the SFC’s engagement is expected to bridge quite some of the gaps that have been pointed out in the high-profile cases of this nature in the city such as the case of the so-called JPEX a crypto exchange that was fingered for fraudulent activity which caused the city to lose a considerable amount in financial terms.
The main aim of the whole matter is to tighten control of these physical OTC sites, which criminal actors may exploit to go after naive retail investors. The SFC is debating whether to bring these services under its jurisdiction so that a more coherent legal space is created.
However, the proposal is still at an initial stage, and the input from industry stakeholders will definitely influence the final regulatory structure. Besides OTC, the SFC has also intensively discussed the possibility of licensing requirements for crypto custodian services, which is close to the full regulation of virtual assets.
Balancing Innovation with Crypto Investor Protection
This regulatory evolution reflects Hong Kong’s ongoing efforts to foster innovation and ensure investor protection. The Financial Services and the Treasury Bureau (FSTB), which had previously handled OTC regulation alone, has indicated that public feedback on the proposed framework has been generally supportive. However, no official results from the consultation have been published yet.
Hong Kong’s drive to enhance regulatory clarity follows a series of policy shifts to position the city as a favourable hub for cryptocurrency investment. Introducing a licensing regime for cryptocurrency exchanges in June 2023 and the subsequent launch of exchange-traded funds (ETFs) directly investing in crypto tokens mark significant steps in this direction.
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