Hong Kong touts retail-friendly crypto rules

Authorities say a well-regulated crypto market will build confidence in digital assets


HONG KONG: Hong Kong opened its arms to the virtual asset world on Thursday, introducing new retail-friendly rules for the city’s crypto exchanges.

The city is looking to embrace crypto despite some high-profile failures in the sector in recent months, including the meltdown of the trading platform FTX, which wiped out more than $1.5 trillion in the market.

China has had a strict ban on crypto since 2021, but in Hong Kong — which operates on a separate legal framework — trading has been allowed but has been unregulated, meaning individual investors use unlicensed platforms.

The regulatory regime introduced on Thursday means that after a one-year transition period, all crypto exchanges in Hong Kong must be licensed, and will be able to take on retail clients.

“(The sector) is going to stay despite all the risks. … These activities have to be allowed in a regulated way,” the city’s financial services and treasury chief Christopher Hui told AFP.

The new rules have an emphasis on investor protection measures, like requiring exchanges to vet their clients and limit their risk exposure, as well as restricting trade to “large-cap” tokens such as bitcoin.

The crypto exchange OKX — founded in China but now based in Seychelles — told AFP it was “committed to the Hong Kong market” and will apply for a licence.

“Hong Kong is making concrete strides and is building confidence among industry players,” said Lennix Lai, OKX’s global chief commercial officer.

Regulators said they hope to move quickly to issue the first licences.

But a prominent activist investor in Hong Kong said on Thursday the new policy lends credibility to a risky sector and endorses speculation.

“Hong Kong has a history of jumping onto financial bandwagons just as the wheels are falling off,” David Webb, a former investment banker, told AFP.

The government may say the new crypto regime is similar to that of traditional finance, but Webb said the “analogy breaks down” as most crypto — unlike stocks or futures on companies and commodities — have no intrinsic value.

“There’s no reason why (the government) should encourage people to bet on someone else paying more for something that has no fundamental value,” Webb said.

Last year, the city said HK$1.7 billion ($217 million) was lost to crypto-related scams, which police attributed to criminals taking advantage of the public’s lack of sector knowledge.

The new rules ask exchanges to conduct a “holistic assessment” of a client’s understanding of digital currencies before taking them on, but give no specifics.

One company licensed under Hong Kong’s previous regime tells its prospective clients to take a screenshot showing they have finished watching 13 instructional videos in a free online course.

But they “DO NOT need to complete any programme assignments or take any tests”, it wrote on its website.