Hong Kong Steps Forward in Crypto Regulation: Awards First Retail Crypto Licences

Hong Kong's crypto industry made a giant leap yesterday, with local exchanges HashKey Group and OSL being the first recipients of the retail crypto licences from the Securities and Futures Commission (SFC).

Both HashKey and OSL were previously licensed under the SFC's voluntary regime and hence had a simplified process to acquire the new licences. These are the first approvals announced since the mandatory licensing regime was put into practice, symbolizing a significant stride in the legitimization of the crypto industry in Hong Kong.

Existing virtual asset trading platforms operating in Hong Kong have been given a deadline of February 29, 2024, to apply for this license if they wish to continue functioning in the city. This move demonstrates Hong Kong's intent to provide a clear regulatory framework for the crypto industry, a step forward in offering greater protection to investors.

However, the licensing comes with stringent requirements and measures to protect retail investors. There is a thorough whitelisting process for tokens, and potential investors must undertake a mandatory knowledge test. This process aims to ensure investors are well-informed about the risks and nuances of investing in crypto assets.

Furthermore, Hong Kong has introduced one of the strictest custody regimes globally, requiring 98% of customer crypto assets to be held in onshore-controlled cold wallets. This indicates Hong Kong's serious commitment to investor protection in the crypto industry.

Industry liberalization

This move aligns with the wider trend of Hong Kong's liberalization of the crypto space. Over the past year, Hong Kong has emerged as a significant hub for crypto businesses, with several exchanges and blockchain startups setting up base in the city. The SFC has been proactive in creating regulatory clarity for the industry, helping to foster an environment conducive to the growth of crypto businesses.

However, the licensing move also showcases Hong Kong's stringent approach towards crypto regulation, balancing innovation and investor protection. It sets a precedent for other nations to observe as they look to regulate the rapidly evolving crypto industry.

With this new development, Hong Kong stands at the forefront of crypto regulation, setting an example for other nations on how to incorporate the thriving crypto market into existing financial systems while prioritizing investor protection. It remains to be seen how other regions will respond to this move and what the long-term implications will be on the global crypto industry.