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Hong Kong Publishes Virtual Asset Trading Platform Rules for Comment
CoinDesk | Sandali Handagama, Lavender Au | Feb 20, 2023
Image: Pixabay
Hong Kong's Securities and Futures Commission (SFC) on Monday published its proposed rules for virtual asset trading platforms and is seeking public comment.
- Comply or close: Under the new regime, all crypto trading platforms planning to apply for a license – including pre-existing platforms – "should begin to review and revise their systems and controls to prepare for the new regime," the notice said.
- "Those which do not plan to apply for a license should start preparing for an orderly closure of their business in Hong Kong," it added.
- Seeking feedback: Aside from setting up a licensing regime for crypto service providers, the regulator is also seeking views on whether to allow licensed platforms to serve retail investors, and under what investor protection measures these services should be offered, an official notice said.
See: Hong Kong’s Finance Regulator Says ‘Blocks are Ready’ to Grow Digital Asset Ecosystem
- Under the proposed measures, it will be up to operators to do due diligence on tokens, and monitor them. That includes assessing the regulatory status of the asset in each jurisdiction in which the operator provides trading services. It also proposes checks on the operator’s liquidity and whether its holdings are concentrated or controlled by a small number of individuals or entities.
- Eligible tokens: Operators can only offer tokens which satisfy the SFC's criteria for an "eligible large-cap virtual asset," listed on two "acceptable indices."
- The proposed measures also state that operators should not offer virtual assets which fall within the definition of "securities" if it would breach Hong Kong's Securities and Futures Ordinance.
- They must do smart contract audits on tokens to check for security flaws.
- The SFC proposes operators provide a compensation arrangement which it must approve to cover for risks, in place of a hard limit for assets held in cold storage. Operators will have to monitor daily the amount of customer assets held and adjust the arrangement accordingly.
- Eligible tokens: Operators can only offer tokens which satisfy the SFC's criteria for an "eligible large-cap virtual asset," listed on two "acceptable indices."
- Hong Kong is also planning to regulate stablecoins starting in June this year.
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