Hong Kong-based regulator Securities and Futures Fee (SFC) has launched a brand new session for newly proposed necessities for operators of digital asset buying and selling platforms.

The session seems to be to grasp views on whether or not the SFC ought to permit licenced digital belongings platform operators to serve retail traders in Hong Kong. SFC can also be contemplating which measures it ought to implement to make sure the safety of traders.

As a part of a brand new licensing regime beginning 1 June 2023, any individual or organisation trying to present a digital asset service (together with working a digital asset change) might want to apply for, and acquire, a licence from the SFC earlier than they achieve this.

Julia Leung, chief govt officer of the SFC, defined the timing of the brand new proposals. Leung stated: “As has been our philosophy since 2018, our proposed necessities for digital asset buying and selling platforms embrace strong measures to guard traders, following the ‘similar enterprise, similar dangers, similar guidelines’ precept.

“In gentle of the current turmoil and the collapse of some main crypto buying and selling platforms around the globe, there’s a clear consensus amongst regulators globally for regulation within the digital asset area to make sure traders are adequately protected and key dangers are successfully managed.”

The Securities and Futures Fee has set a deadline for enter submissions of 31 March 2023.

Hong Kong’s regulatory proposals for digital belongings

The SFC recommended implementing the next guidelines to make sure that buyer belongings are secure and safe:

• The regulator for Hong Kong proposes that digital asset buying and selling platforms ought to maintain all consumer cash and digital belongings by a wholly-owned subsidiary.
• Ought to the proposals come into play, platforms might want to be sure that not more than two per cent of their consumer’s digital belongings are saved in ‘scorching wallets’. This time period refers to wallets that aren’t related to an online server and provoke monetary transactions involving cryptocurrency through browser-based internet pages. ‘Scorching wallets’ are extremely susceptible to cyberattacks as a result of the private and non-private keys are all saved on the web.
• As a result of a lot of the secure custody of digital belongings comes right down to the storage of personal keys, all platform operates would want to implement inside insurance policies and governance procedures for personal key administration. Platforms would securely generate, retailer, and again up all cryptographic seeds and keys.
• The brand new process would be sure that platform operators don’t deposit, switch, lend, pledge, repledge or cope with consumer digital belongings in any approach.
• Operators will even must maintain an insurance coverage coverage in place to cowl all related dangers of the custody of digital belongings.
• KYC checks would additionally type an vital a part of regulatory adjustments, guaranteeing purchasers have enough data of digital belongings. This primarily covers the consumer’s data of dangers, earlier than platforms can present any providers to the consumer.

Hong Kong: Crypto hub?

The transfer comes as excellent news to many in Hong Kong, who at the moment must cope with unlicensed exchanges ought to they wish to spend money on, or commerce, crypto.

The regulatory information additionally comes shortly after Hong Kong’s monetary secretary, Paul Chan, defined that the area was persevering with to develop its cryptocurrency infrastructure. Regardless of the collapse of FTX, Hong Kong continues to aim to attract crypto corporations into its remit.

Hong Kong could have concentrated its efforts to catch as much as the standing of Singapore, which has continued to advertise cryptocurrency. Nonetheless, current historical past has not been sort to the nation’s crypto area. Singapore’s state funding fund Temasek had invested lots of of hundreds of thousands of {dollars} within the FTX change – previous to its collapse.

Lawrence Wong, Deputy Prime Minister of Singapore, defined in November 2022 that the losses had prompted reputational harm. As Singapore struggles to rebuild belief within the sector, now might characterize a great alternative for Hong Kong to play catch up.