Hong Kong Securities Regulator Bans Crypto “Gifts” to Encourage Retail Investments. Hong Kong’s Securities and Futures Commission (SFC) to Start Accepting Crypto Trading Platform License Applications from June 1
The Securities and Futures Commission (SFC) has agreed to permit licensed virtual asset providers to cater to retail investors, as long as operators assess their understanding of the associated risks. This decision was announced in a report on the regulator’s consultation on policy recommendations, which was released on Tuesday. The SFC had sought public feedback on its initial policy recommendations in February.
The rulebook clearly prohibits giving crypto “gifts” to retail customers as a way to encourage them to invest. This includes activities like airdrops, where free tokens are distributed.
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The guidelines have been updated based on public feedback and now emphasize that platform operators have the responsibility to thoroughly research and evaluate projects. Simply being listed on two acceptable indices is considered the minimum requirement for trading on the platform.
According to the rules, crypto exchanges must always have a minimum capital of at least 5,000,000 Hong Kong dollars ($640,000). Additionally, at the end of each month, they need to provide the SFC with information about their available and required liquid capital, a summary of bank loans, advances, credit facilities, and a profit and loss analysis.
The document includes more information about enabling retail investors to use trading platforms and ensuring proper evaluation of tokens for listing. All tokens that want to be listed on exchanges must undergo due diligence procedures, even if they are already listed on another platform. They will also need to undergo smart contract audits conducted by independent assessors. Platform operators are not required to have external members on token review committees, as long as they effectively manage any conflicts of interest.
The SFC will permit platforms to separate client assets and their own assets either by using an escrow arrangement or by setting aside funds within the licensed platform. It is important that client virtual assets are fully protected by each platform’s compensation arrangement.
When it was suggested that third-party custodians could be used to protect client assets, the SFC responded by explaining that since there are no regulations specifically governing custodians of virtual assets, allowing their involvement would make it difficult for the SFC to oversee and enforce necessary regulations.
The SFC mentioned that it will seek input through a separate review regarding the possibility of allowing derivatives, as it recognizes their significance for institutional investors.
Regarding the implementation of the FATF’s travel rule, which involves sharing information on cryptocurrency transactions between financial institutions, the SFC stated that if the required information cannot be provided immediately to the receiving institution, it will accept the submission as soon as possible after the transfer of virtual assets until January 1, 2024.
The guidelines also provide clear explanations about the requirements to prevent money laundering and the criteria for imposing fines on platforms that fail to comply with these requirements.
The updated guidelines will be effective starting from June 1.
Important: This article is intended solely for informational purposes. It should not be considered or relied upon as legal, tax, investment, financial, or any other form of advice.
