Exchanges ‘undeterred’ by new rules in HK
Firms ‘still show keenness although requirements come with high costs’
Hong Kong’s long-awaited cryptocurrency rules that kick off a new regulatory regime for virtual assets will come into effect today, which experts said will place a greater burden on exchanges in the city but will not deter business.
The city’s retail trading rules and licensing guidelines, finalised last week, represent one of the most exacting regulatory frameworks for centralised cryptocurrency exchanges in the world as Hong Kong opens its arms to the volatile digital asset sector following a series of meltdowns last year.
As of this month, cryptocurrency exchanges must seek a licence with the Securities and Futures Commission (SFC) to sell and market to consumers in Hong Kong. As the commission starts to process licence applications, exchanges that already have a large presence in the city have a one-year window to continue operations while they prepare to comply with the new rules or exit the market.
“The significant compliance obligation has not deterred interest from cryptocurrency firms hoping to gain a foothold in Hong Kong,” said Joy Lam, a partner at law firm Baker McKenzie. “We have been inundated with requests from existing and new market entrants who want to become licensed in Hong Kong.”
The centralised exchanges will have to comply with a broad range of requirements covering areas including user onboarding, asset custody, cybersecurity and corporate governance.
They also needed to conduct due diligence on the cryptocurrency tokens they admitted and offer only those with large market capitalisations and high liquidity, the SFC said.
“It will require intensive preparation and investment cost to set up a trading platform capable of meeting the requirements,” Latham & Watkins lawyers wrote in a blog.
Secretary for Financial Services and the Treasury Christopher Hui Ching-yu said at an event in March more than 80 companies from the mainland and abroad had expressed interest in setting up Web3 businesses in the city.
OKX and Huobi are among those that have publicly said they are applying for a licence to operate in the city. Both are among the largest cryptocurrency exchanges in the world and were founded on the mainland. They said they had started to admit retail users in the city while also working on complying with the new rules.
BitMEX, once a top exchange known in the industry for offering derivative products that allow traders to leverage their capital up to 100 times, last week said it was launching a separate app for users in the city that only offered spot trading.
Releasing a new app for the city separate from its main global service was “the safest and most compliant way in ensuring it’s fully in line with the expectations of the Hong Kong regulators”, CEO Stephan Lutz said.
Gate.io, a 10-year-old cryptocurrency exchange, also launched a dedicated platform for the city on Tuesday called Gate.HK.
The firm was “actively pursuing” licensing in the city because of “the region’s strategic significance as a global financial hub” and the recent introduction of the SFC’s licensing regime, chief executive Kevin Lee said.