Cryptocurrency Firms Rush to Hong Kong: Exploring the Effects of Fresh Regulation Policies
In a move to ensure the legitimacy and safety of the crypto industry, the Securities and Futures Commission (SFC) in Hong Kong has introduced regulations requiring crypto exchanges to prove they have "genuine operations and genuine business practices." Although a formal checklist under this specific phrase is not explicitly detailed, the regulatory context and licensing expectations offer valuable insights into the SFC's requirements.
To operate legally in Hong Kong, Virtual Asset Trading Platforms (VATPs) must be licensed by the SFC. This licensing requirement demonstrates the platform's operational legitimacy. Exchanges are expected to have a clear, physical or legal presence in Hong Kong, indicating authentic local business activities rather than merely nominal or shell entities.
Genuine operations imply robust compliance controls, including anti-money laundering (AML), counter-financing of terrorism (CFT) measures, and good governance structures aligned with Hong Kong’s regulatory standards. Platforms must also implement transparent business practices, such as clear client onboarding procedures, transaction monitoring, and risk management.
Evidence of sound financial standing and ongoing business, such as audited accounts and sufficient capital, is necessary to prove a crypto exchange's validity and ongoing operational ability. Additionally, there are retail investor restrictions and suitability assessments, reflecting the exchange's genuine business responsibility towards investor protection.
For stablecoins, the Hong Kong Monetary Authority (HKMA) similarly requires issuers to have proper operational frameworks, including reserve management, redemption mechanisms, and AML controls. This reinforces the theme that regulated crypto entities must demonstrate genuine, verifiable business activities.
If a crypto exchange promotes its services to the Hong Kong public, regardless of its place of incorporation, it must obtain a license. The SFC will grant operational approval only to non-securities trading crypto platforms demonstrating genuine operations and business practices. These regulated individuals will undergo a comprehensive "fit and proper" assessment by the SFC, considering their professional experience, regardless of whether it was acquired in Hong Kong or another jurisdiction.
In summary, to meet the regulatory expectation of "genuine operations and genuine business practices," crypto exchanges in Hong Kong must establish verifiable local business presence, robust compliance systems (particularly AML/CFT), transparent operational controls, financial stability, and investor protection measures within the SFC’s licensing framework. The new regulations aim to ensure the legitimacy and safety of the crypto industry in Hong Kong.
[1] Securities and Futures Commission (SFC) - Virtual Asset Trading Platforms (VATPs) Guidance (June 2021) [3] Hong Kong Monetary Authority (HKMA) - Guidance on Stablecoins (July 2020) [4] Hong Kong Monetary Authority (HKMA) - Consultation Conclusions on Regulatory Framework for Virtual Asset Service Providers (July 2021)
- Within the SFC's licensing framework in Hong Kong, crypto exchanges must verify their local business presence, implement robust compliance measures, maintain financial stability, and prioritize investor protection to prove they have genuine operations and business practices.
- Exchanges in the cryptocurrency industry, especially those operating in Hong Kong, are expected to adhere to the regulatory guidelines set by the Securities and Futures Commission (SFC), ensuring they practice transparent business operations, demonstrate financial standing, and have adequate controls against money laundering and terrorism financing.
