Hong Kong regulator sets out rules for crypto exchanges to get licenses

HONG KONG (Reuters) – Hong Kong’s financial regulator published new rules on Wednesday that would allow cryptocurrency exchanges to receive an operating license, a step intended to improve regulation and standards and help prevent fraud.

FILE PHOTO: Ashley Alder, Chief Executive Officer of Hong Kong’s Securities and Futures Commission, attends the Asian Financial Forum in Hong Kong, China January 15, 2018. REUTERS/Bobby Yip/File Photo

Market watchdogs have been debating whether and how they should regulate the cryptocurrency industry since Facebook’s plans to launch its Libra digital currency caused many of them to broaden their focus on digital assets beyond investor protection concerns.

Hong Kong hosts dozens of cryptocurrency exchanges, also called virtual asset trading platforms, including some of the world’s largest.

Ashley Alder, chief executive of Hong Kong’s Securities and Futures Commission (SFC), said such exchanges had largely escaped regulation until now because most of the virtual assets traded on their platforms were not technically securities.

“After an in-depth examination of their unique technical and operational features, we concluded that some could be regulated by us,” Alder said in a speech before the SFC published its new regulations.

Some cryptocurrency exchanges in Hong Kong and elsewhere say they welcome regulation as it would boost standards and allow licensed exchanges to differentiate themselves from unlicensed competitors. Others prefer to operate further under the radar.

NEW FRAMEWORK

The new rules, under which exchanges can apply to be regulated from Wednesday, draw on the standards the SFC expects for conventional securities brokers.

They stipulate that an exchange that wants to be licensed must provide services to professional investors only, have an insurance policy to protect clients in case assets are lost or stolen, and use an external market surveillance mechanism.

Cryptocurrency exchanges do not need an…

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