Hong Kong’s financial regulator finally implemented its new regulatory framework for crypto on the first of June.
Under the new rulebook, the city-state will allow retail investors in the city to trade specific “large-cap tokens” on licensed exchanges, given that safeguards such as knowledge tests, risk profiles, and reasonable exposure limits are put in place.
The Securities and Futures Commission (SFC) of Hong Kong will also start providing licenses to crypto exchanges.
The framework has been designed to prioritize investor protection over cost-saving for cryptocurrency exchanges as Hong Kong seeks to become a leading digital-asset hub, according to Bloomberg’s Suvashree Ghosh.
Ghosh claimed this should not come as a surprise given that the crypto crash last year exposed risky practices and outright fraud.
She added that the Hong Kong government might hope that China may one day invest in cryptocurrency through Hong Kong.
“The potential lies not so much in the local Hong Kong market but vast Chinese wealth, some of which flows through the city,” Ghosh said.
“And some investors even see the possibility of China one day lifting its mainland crypto ban and permitting citizens to do some trading through Hong Kong — both very, very big “ifs” that depend on the capricious whims of regulators.”
However, the crypto industry has been cautious over the regulatory changes, citing concerns about the costs and complexities of adhering to such exacting rules.
The regulatory requirements include risk profiling, insurance and asset custody rules, and decisions on allowable tokens.
Despite this, several leading digital-asset platforms including big names such as Huobi, OKX, and Amber Group, have applied for licenses under the new crypto regime.
Exchanges taking the plunge are likely to face regulatory hurdles, however. OKX has already reported they are still finding it challenging to secure crucial banking rails.
Chinese Crypto Veteran is Not Optimistic About Hong Kong’s Crypto Ambitions
Earlier this week, crypto pioneer Bobby Lee, who set up China’s first Bitcoin exchange and founded US-based crypto storage provider Ballet Global, warned that Hong Kong’s ambition to become a crypto hub may not be sustainable.
Lee claimed that officials who let exchanges obtain a license may have overblown expectations for connecting with mainland China as digital asset trading remains banned in China.
“The fantasy for exchanges is thinking that if officials let us get a license, then maybe they’ll start a sort of crypto-connect trading link with mainland China.”
He predicted that the city may once again change its stance toward crypto in three to five years and announce a ban on the industry.
On the other hand, Hong Kong officials have claimed that the city is pushing for Web3 and blockchain to position itself as a hub for digital innovation in Asia.
Last week, the Hong Kong Police Force even launched CyberDefender, a new metaverse platform aimed at educating the public about the potential dangers associated with Web3 and the metaverse.