The Securities and Futures Commission (SFC) of Hong Kong recently concluded a consultation on retail participation in the crypto market. The SFC affirmed its decision to enable individual investors to buy and sell major cryptocurrencies like Bitcoin and Ether, starting June 1. This development coincides with the launch of a new licensing regime for virtual-asset platforms.

Balancing Crypto Firm Attraction and Investor Safeguards: Hong Kong’s framework is designed to attract crypto companies while prioritizing investor protection. Licensed platforms will be required to adhere to a comprehensive set of investor protection measures, encompassing onboarding procedures, governance, disclosure, token due diligence, and admission processes. Retail investors will have the opportunity to trade larger cryptocurrencies on exchanges regulated by the SFC. To ensure safety, safeguards such as knowledge tests, appropriate risk profiling, and reasonable exposure limits will be implemented.

In a bid to establish credibility for listed cryptocurrencies, Hong Kong’s regulatory approach mandates that the coins should be included in at least two acceptable and investible indexes. These indexes must be provided by independent organizations, with one having experience in the traditional financial sector. Additionally, the city has already approved exchange-traded funds (ETFs) investing in Bitcoin and Ether futures offered by CME Group Inc., leading to a flurry of product launches.

Hong Kong’s foray into the crypto industry is a full-circle journey. It served as a digital-asset hub during the industry’s early years but subsequently adopted a more skeptical stance. The city’s allure as a conduit for mainland Chinese capital diminished due to China’s ban on cryptocurrencies in 2021. However, Hong Kong now aims to regain its standing as a prominent player in the digital-asset space.

Regulators worldwide are grappling with the challenges posed by the crypto industry.

• Hong Kong and Dubai are actively seeking to attract crypto-related investments.
• Singapore, are planning restrictions on retail investor participation.
• South Korea is on the verge of passing its first standalone crypto legislation after a series of scandals
• The United States has taken a stricter stance, cracking down on the sector.

• Malaysia reprimanded Huobi Global, a prominent crypto platform, for allegedly operating illegally and ordered it to cease activities in the country. Huobi Global, however, stated that it had not been active in Malaysia since 2022.
• In the Philippines, allegations were made against a non-US derivatives trading venue established by Gemini Trust Co., claiming that it lacks the necessary permits. Gemini Trust Co. declined to comment on the issue.

Despite Hong Kong’s embrace of cryptocurrencies, questions persist regarding the industry’s recovery from the $1.5 trillion crash experienced in the previous year. Key players such as Huobi Global, OKX, and Amber Group have expressed their intention to apply for licenses under the new regulatory regime.

Hong Kong Monetary Authority Chief Executive Eddie Yue has emphasized the expectation of stringent regulations for companies operating in the crypto ecosystem. While the new regulations bring excitement, they also indicate that light-touch regulation is unlikely.