Hong Kong Retail investors will not be allowed to trade cryptocurrencies

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The Hong Kong government has introduced a legislative proposal to ban retail investors from trading crypto and it requires all the virtual assets trading platforms to get licenses for operating in the territory. 

Hong Kong’s Financial Services and Treasury Bureau introduced a legislative proposal last year in November and it has now completed a three-month consultation with the industry and members of the public. This proposal is expected to turn into a bill and become law later this year. 

As per the proposed law, all the virtual assets services providers — including crypto exchanges, custody services providers, and virtual assets financing services should apply for a license from the Securities and Futures Commission (SFC). It also requires all the virtual assets service providers who wish to apply for an SFC license should serve “professional investors only.” 

Industry Insiders feel that if these restrictions on cryptocurrency trading become law, then it could make companies and fintech talent lose all the interest in Hong Kong and force them to move towards more crypto-friendly shores. 

Flex Yang, CEO at Babel Finance, a Hong Kong-based crypto asset management firm, told Forkast.News that,

“The industry is still in its early stage of development and regulators should allow more open space for innovation and entrepreneurship. Limiting crypto trading opportunities only to professional investors risks losing market competitiveness for Hong Kong in comparison to other markets such as the U.S., U.K. and in particular Singapore.”

Global Digital Finance (GDF) which is a not-for-profit industry association, warned in a letter that this regulation could inhibit innovation and hinder the competitiveness of the Hong Kong financial market in the virtual assets business.

The industry association also expects that limitations to professional investors will go beyond Financial Action Task Force (FATF) recommendations and may increase the risk of money laundering. It is because the retail investors may switch to unregulated exchanges. 

But Hong Kong’s Financial Services and the Treasury Bureau do not agree to this evaluation. In fact, the bureau says that it is a member of the FATF. FATF is the inter-governmental body that sets international standards for combating money laundering and terrorist financing. The bureau further exclaims that the proposal was developed with respect to FATF’s recommendations. 

The rule states that it would “empower the SFC to decide the requirements of licensing conditions of virtual assets service providers.” The rule included the “professional investors only” requirement at the initial stage. Furthermore, it states that “the SFC will continue to monitor the market and reconsider its position as the market becomes more mature in future”.

A professional investor is one who has a portfolio of not less than 8 million HKD, or about US$1.03 million. But, only 7% of the territory’s population will have enough money to be eligible for “professional investors” while the remaining 93% will be banned from trading cryptocurrencies under the proposed rule, says the South China Morning Post. 

Lennix Lai, director of financial markets of cryptocurrency exchange OKEx, told Forkast.News that,

“We will certainly consider applying for a license. This would definitely be beneficial given the increased participation of institutional investors in the space.” 

Lennix said that the SFC should allow retail investors to trade as well. He also stated that cryptocurrency can democratize investing and provide inclusive financing to people. Additionally, he said,

“After all, cryptocurrency is the hottest alternative asset right now and shouldn’t be exclusively available to the wealthy.”

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