The Securities and Futures Commission (SFC) of Hong Kong released its draught regulations for virtual asset trading platforms and is now accepting public feedback.
The regulator is seeking opinions on whether to permit licenced platforms to serve retail investors as well as what investor protection measures these services should be provided, according to an official notice. This is in addition to creating a licencing regime for cryptocurrency service providers.
The published consultation paper outlines suggested standards, such as determining limitations to guarantee that clients’ exposure is ‘appropriate’ and assessing their risk profile.
Operators will be responsible for doing due diligence on tokens and keeping track of them under the proposed regulations. This includes evaluating the asset’s regulatory standing in each country where the operator offers trading services. Additionally, it suggests examining the operator’s liquidity and whether or not a small number of people or groups control or have a disproportionate amount of the operator’s holdings.
According to the notice, any cryptocurrency trading platforms, including those that already exist, that want to apply for a licence under the new regime shall begin to assess and adapt their systems and procedures to prepare for the new regime.
In accordance with the proposed restrictions, operators must refrain from providing virtual assets that meet the definition of ‘securities’ if doing so would violate Hong Kong’s Securities and Futures Ordinance.
Instead of imposing a strict restriction on the amount of assets that can be kept in cold storage, the SFC suggests that operators offer a compensation mechanism that it must approve to offset risks. The amount of customer assets retained must be monitored by operators every day, and the arrangement must be changed as necessary.
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