Should licensed platform operators be allowed to serve retail investors?, Hong Kong’s SFC asks

Rick Steves

The Hong Kong regulator is seeking views, particularly on whether to allow licensed platform operators to serve retail investors, and if so, the measures to be implemented in addition to the proposed range of robust investor protection measures, which include ensuring suitability in onboarding clients and token admission.

Hong Kong’s financial watchdog, the Securities and Futures Commission (SFC), has announced a consultation on the proposed requirements for operators of virtual asset trading platforms.

The new licensing regime is to take effect on 1 June 2023 and will require all centralized virtual asset trading platforms carrying on business in Hong Kong or actively marketing to Hong Kong investors to be licensed by the SFC.

Proposed rules based on regulation for licensed securities brokers and automated trading venues

The proposed regulatory requirements for virtual asset trading platforms are based on the regulatory requirements of the existing regime under the Securities and Futures Ordinance.

These are comparable to those for licensed securities brokers and automated trading venues. The SFC said it has also taken the opportunity to propose modifications to some requirements of the existing regime.

Julia Leung, the SFC’s Chief Executive Officer, commented: “As has been our philosophy since 2018, our proposed requirements for virtual asset trading platforms include robust measures to protect investors, following the ‘same business, same risks, same rules’ principle. In light of the recent turmoil and the collapse of some leading crypto trading platforms around the world, there is clear consensus among regulators globally for regulation in the virtual asset space to ensure investors are adequately protected and key risks are effectively managed.”

Crypto platforms that do not apply for SFC license must close business

The Hong Kong regulator is seeking views, particularly on whether to allow licensed platform operators to serve retail investors, and if so, the measures to be implemented in addition to the proposed range of robust investor protection measures, which include ensuring suitability in onboarding clients and token admission.

Operators of virtual asset trading platforms which plan to apply for a license, including pre-existing platforms, are advised to review and revise their systems and controls to prepare for the new regime.

Crypto platform operators that do not plan to apply for a license should start preparing for an orderly closure of their business in Hong Kong, the regulator added.

The Hong Kong SFC plans to publish lists on its website to inform the public of the different regulatory statuses of VA trading platforms.

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