Explainer: What is Hong Kong’s plan for licensing cryptocurrency exchanges

Cryptocurrency exchange operators must enter regulatory sandbox if they want to be licensed in Hong Kong

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Ashley Alder, Chief Executive Officer, The Securities and Futures Commission (SFC) Hong Kong, delivers keynote speech at the HK FinTech Week held at the Hong Kong Convention and Exhibition Centre in Wan Chai. November, 2018 Photo: SCMP

Published: 6:00am, 6 Nov 2018Updated: 8:48pm, 6 Nov 2018

The wild west days of cryptocurrency exchanges in Hong Kong may be at an end.

The city’s securities watchdog last week unveiled a new set of rules governing cryptocurrencies, which included a potential route for the licensing of digital asset exchanges for the first time.

Here’s what you need to know about the new regulations.

What happened?

The Securities and Futures Commission’s new rules on cryptocurrencies can essentially be boiled down to two points. Firstly, all funds that invest more than 10 per cent of their portfolios in crypto-assets will be licensed by the SFC one way or another, and are required to deal with institutional investors only. That is regardless of whether they invest in only bitcoin and ethereum, or other crypto-assets that fall under the definition of securities.

Secondly, if cryptocurrency exchanges want to be licensed and regulated by the SFC they should voluntarily put themselves in the regulatory sandbox, which among other things, requires them to only deal with institutional investors. After the exploratory stage ends, the SFC will then decide whether it is minded to license and regulate cryptocurrency exchanges. There is no specific timetable yet.