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Hong Kong Crypto Businesses Must Comply With Stifling Restrictions

Hong Kong’s Securities and Futures Commissionwill require firms intending to locally offer retail crypto products to comply with asset custody and segregation regulation

The agency announced the new regulations following a recent consultation.

Hong Kong Retail Investors Cannot Hold Stablecoins

Early crypto license applicants can only list Chainlink, Cardano, Polygon, Avalanche, Bitcoin, Ethereum, Bitcoin Cash, Litecoin, and Polkadot. These coins appear on at least two of the major crypto indexes from Galaxy, Bitwise, WisdomTree, 21Shares, and Nasdaq.

Licensees may not advertise specific crypto assets or engage in proprietary trading or lending. They must also employ measures to prevent money laundering and terrorism financing.

The approved regulations will prevent traders from holding stablecoins until the SFC tables new regulations. Investors cannot earn yields similar to customers of Gemini Exchange’s Earn product.

So far, the SFC has not yet greenlighted applications for companies wishing to come under the new regime.

The SFC will gazette virtual asset platform requirements on May 25 to become effective on June 1.

SFC Regulation Welcomed Despite Restrictions

Hong Kong received plaudits from the crypto industry when it announced its willingness to embrace crypto regulation, especially amid a reluctance from the U.S. to consider a new framework. 

CEO Changpeng Zhao has that “bad restrictive” regulations are better than no regulations. He also criticized enforcement without clear rules.

China’s hostility towards crypto has seen many firms consider Hong Kong, including research firms Kaiko and crypto exchange Bybit. Bybit wants to make Hong Kong the base of its Asian operations. 

American crypto entrepreneur Cameron Winklevoss predicted the next bull run would start in Asia.

Brian Armstrong, the CEO of the largest crypto exchange in the U.S., Coinbase,  that the U.S. would get left behind amid regulatory developments in the European Union, Hong Kong, and the U.K.

Hong Kong’s Transaction Volume Grew 9.5% in 2022 | Source: Chainalysis

However, some of the initial excitement abated during the consultation process, which saw lawmakers from the Asian region err on the side of caution. 

Alessio Quaglini of custodian HexTrust has criticized a requirement that a wholly-owned subsidiary of the licensee must hold customer assets.

He argued that customer assets should be separate from an exchange. Companies have also questioned the cost of licenses and whether a crypto firm can operate profitably in the Asian region.


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