Hong Kong lawmakers have introduced new legislation tailored to regulate the cryptocurrency space and aim to implement a new licensing regime for crypto service providers. The proposed law governing cryptocurrencies will boost Kong Kong’s leap into the virtual asset market and will also bring their providers into the mainstream of the island’s financial services sector.
Amendments Set to Align Cryptocurrency Sector With Traditional Finance
Amendments have been introduced to govern the cryptocurrency market in Hong Kong and now await approval from members of the Legislative Council of China’s special administrative region. The Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022 was published in the government gazette in June and needs approval in two separate readings to become law. The authors of the draft seek to review the bill to introduce licensing for virtual asset service providers (VASPs) and enrollment for dealers in precious metals and stones. The objective of the bill is to use the force of the law against tax evasion and counter-terrorism-based financing commitments on the businesses operating in the two aforementioned sectors.
If, for instance, entities working with cryptocurrencies want to introduce a trading platform, they would have to procure a license from the Hong Kong Securities and Futures Commission (SFC) and would have to comply with several requirements. Under the new legislation, the SFC will be charged with ensuring that VASPs show their asset listing and trading policies, proper financial reporting, and disclosure, as well as establishing appropriate mechanisms to prevent market manipulation, abusive activities, and conflicts of interest.
According to Andrew Leelarthaepin, crypto exchange Bitstamp’s managing director for Asia Pacific, in an article published by the South China Morning Post, the amendments are almost identical to those that would apply to traditional institutions in the financial services industry, and they should meet comparable standards. He sees crypto firms as part of Hong Kong’s financial framework and comments:
Put simply, VASPs can expect to be regulated to the same standard as our institutional clients. The law recognizes VASPs as peer organizations within the financial services sector.
The proposed set of regulatory and statutory measures marks a significant step in mainstreaming cryptocurrencies within Hong Kong’s financial sector. This matters for two important reasons. For one, regulating cryptocurrencies within the realm of traditional financial services helps to further investor protection. They operate as customer protection-like measures and act to further investor participation and confidence in the ecosystem.
Secondly, traditional investors feel very secure when operating in a regulated space with a set rules-based system developed by financial regulators. Consequently, many institutions will wait for further regulatory clarity before entering a new market.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
