Nick Chong · 4 days ago · 2 min read · Insights via Grayscale Investments
China › Regulation
Hong Kong Unveils Regulatory “Sandbox” for Cryptocurrency Trading Platforms and Exchanges
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Hong Kong unveiled a new set of regulations aimed at governing the local cryptocurrency trading and funding market in a move that seeks to improve investor protection and the city’s status as a premier financial hub.
Accredited Investors Only
As reported by the South China Morning Post on Nov. 1, Hong Kong’s Securities and Futures Commission (SFC) is targeting digital currencies that have mushroomed in the city due to its liberal business policies and tax legislation. Importantly, the watchdog shifts retail interest away from investing in the volatile asset class to accredited individuals.
As part of the new rules, both virtual currency exchanges and fund fall under the purview of the Hong Kong government, after years of running as an unregistered investment house, but as legal businesses otherwise.
Gary Cheung, chairman of the Hong Kong Securities Association, stated:
“It will boost investor protection and hence attract more mainlanders to trade cryptocurrency assets in Hong Kong. This will help Hong Kong to be among the top cryptocurrency trading centres worldwide because proper regulation is very important for attracting the big players.”
As per Hong Kong law, professional investors are those with HK$8 million in assets and two years of investing experience. The city’s authorities further believe professional investors, like brokers, platform operators, and fund managers, must guide clients towards responsible investment practices. Furthermore, any fund investing devoting more than 10 percent of their total assets under management to cryptocurrencies must be registered with the government.
Speculation Leads Price Increase
Authorities believe cryptocurrency prices rose last year after immense speculation from both institutional and retail investors. However, the former followed a fundamental strategy for investing, such as expecting more extensive use in payments and long-term benefits, while the latter placed bets for short-term gains.
Unlike Mainland China, which imposed a blanket ban on digital assets in 2017, Hong Kong has taken a lenient view of the cryptocurrency market. Adam Alder of the SFC notes the difference in regulatory approach comes from encouraging the “responsible use of new technologies.”
Meanwhile, authorities are setting up a “sandbox” for cryptocurrency platforms to operate legally until legislation is introduced. Alder believes crypto-businesses cannot match up to requirements of conventional fund investment businesses, and hence, cannot be regulated in the same manner.