Leading the way on day 2 of Hong Kong FinTech Week, the Securities and Futures Commission unveiled a new licensing regime and framework to regulate all virtual asset trading platforms which is a shift from the previous opt-in approach. CEO, Securities and Futures Commission, Mr Ashley Ian Alder, JP, said this will provide greater financial protection to investors and enable more effective AML monitoring.
“Once this new regime is in place, all virtual asset trading platforms in Hong Kong would be regulated, supervised and monitored under one of two regimes: the existing opt-in framework we introduced last year, or the proposed new licensing approach being announced today,”
he said.
Director of Licensing and Head of Fintech Unit, Intermediaries, Securities and Futures Commission, Ms Clara Chiu, introduced the regulatory framework in Hong Kong and said,
“The government will propose a regime, which covers a centralized automated platform that trade non-security token only. Under the proposal, licensed platforms are required to segregate their own assets from client assets and have measures to deal with market manipulation. If a breach is committed there will be intervention and restriction on business.”.
Virtual Assets in the New Economy
As noted by Mr Ashley Ian Alder at the SFC, trading and the use of virtual assets in Hong Kong is growing and here to stay in a post-pandemic world. The focus has sharpened on the use of technology to ensure that virtual assets are regulated on a level playing field and to protect investors.
A new licensing regime was announced to help regulate virtual assets to ensure maximum protection—all digital asset trading platforms operating in Hong Kong would need to apply for this license. This ensures that all virtual assets and central bank digital currencies are regulated, supervised, or monitored as the means to guarantee a level playing field, and reduce risks such as money laundering.
The debate for regulators’ role in virtual assets was further discussed in another panel featuring regulatory experts from Abu Dhabi, Canada and Hong Kong. The views ranged from a comprehensive approach to the opt-in approach.
Tracey Stern, Manager, Market Regulation, Ontario Securities Commission, said
“We realized that the risk of trading on this kind of (Virtual Asset trading) platform for investors is similar to the risk you see in traditional trading platform.”
The fundamental of the risk and the role of regulators to protect are similar in both platforms and the key is to address the implementation of risk management to the new environment. The key considerations identified for regulating virtual asset trading platforms include safekeeping of client assets, security, technology, transparency, price discovery mechanism, and others.
