New Crypto Licensing Regime in Hong Kong Proposal. Is It a Decent Alternative to Singaporean Payment Institution License?

The financial regulator of Hong Kong (The Securities and Futures Commission or SFC) is reportedly going to introduce a new licensing system for crypto exchanges registered and operating in Hong Kong.

There have been no requirements for crypto exchanges in Hong Kong so far, that is why the government decided to bring its regulatory regime in line with the international trends, such as Singapore did last year. 

3 November 2020 Hong Kong government launched a 3-months Public Consultation on Legislative Proposals to Enhance Anti-Money Laundering and
Counter-Terrorist Financing Regulation in Hong Kong.

The major goal of the Consultation is to introduce the proposed regime to the industry and collect feedback on the relevancy of the requirements and strengthening of the AML rules.

The licensing regime will most likely apply to all the exchanges trading both security and non-security tokens. The companies that are going to apply for the VASP license need to be incorporated or have a permanent establishment in Hong Kong. They will also be subject to a range of robust requirements with regard to customer protection, AML rules, controls to prevent market manipulation, etc. 

However, the most significant feature of the new regime is that the licensed crypto exchanges will be able to provide services only to Professional Investors - individuals or companies with over HKD 8 million (USD 1 million) in assets (in contrast to the Singaporean licensing regime tailored for retail customers).

The consultation for the proposal is open until 31 January 2021 and most likely be amended after closing of the consultation. The final bill reportedly will be produced later in 2021.

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