The Securities and Futures Commission (SFC) of Hong Kong has taken a major step in regulating the virtual asset market. In June, it issued a new guideline requiring all virtual asset trading platforms operating in Hong Kong to obtain a license. Operators unwilling to comply must wind down their business in the city.
This move aims to enhance investor protection and ensure market stability while promoting the long-term development of the virtual asset industry.
The Evolution of the Virtual Asset Market
Virtual assets like Bitcoin, blockchain technology, and non-fungible tokens (NFTs) have attracted significant global attention. According to data from Coinmarketcap.com, over US$1 trillion (HK$7.8 trillion) had flowed into the virtual asset market as of earlier this year.
As an international financial hub, Hong Kong plays a key role in this growing sector. A report from PwC indicates that 6% of hedge funds in Hong Kong include cryptocurrency investments—ranking the city third globally, alongside Switzerland and Singapore, and behind only the United States (30%) and the United Kingdom (10%).
However, the collapse of FTX, one of the world’s top five cryptocurrency trading platforms, highlighted serious risks within the industry. Its sudden bankruptcy had a profound impact on investors and underscored the need for clearer regulations.
Regulating Virtual Asset Trading Platforms
In February, the SFC launched a consultation on the regulation of virtual asset trading platforms. After receiving 152 submissions from industry players, professional organizations, consulting firms, market participants, and individuals, it published a conclusion report in May.
On June 1, the SFC released the Licensing Handbook for Virtual Asset Trading Platform Operators, which took immediate effect. Most respondents expressed support for the proposed regulatory measures.
A significant majority agreed that licensed platforms should be allowed to serve retail investors, provided that strict protective measures are implemented. These include:
- Ensuring suitability during the client onboarding process
- Maintaining good governance
- Conducting enhanced token due diligence
- Adhering to clear token inclusion criteria and disclosure requirements
These rules are designed to minimize risk and enhance transparency across the industry.
Strengthening Investor Protection and Market Development
Ms. Julia Leung, CEO of the SFC, emphasized the importance of clear regulatory expectations:
"Providing clear regulatory expectations is essential to promoting responsible development. Hong Kong’s comprehensive virtual asset regulatory framework follows the principle of ‘same business, same risk, same rules.’ It is designed to provide robust investor protection and manage key risks, thereby promoting sustainable industry growth and supporting innovation."
The Guideline for Virtual Asset Trading Platform Operators, effective since June 1, outlines several standards that licensed platforms must meet. Key areas include:
- Safe custody of assets
- Segregation of client assets
- Avoidance of conflicts of interest
- Cybersecurity measures
The SFC has also committed to providing further guidance on the new regulatory regime, including details on the application process and transitional arrangements.
What’s Next for Operators and Investors?
Since June 1, the SFC has begun accepting license applications from virtual asset trading platform operators. Those not intending to apply are expected to begin an orderly shutdown of their operations in Hong Kong.
The SFC is collaborating with the Investor and Financial Education Council to raise awareness about the risks of trading on unregulated platforms. It also reminds investors that although the new regime is in effect, no virtual asset trading platform has yet been approved to serve retail investors. Most platforms currently accessible to the public remain unregulated.
This measured approach aims to balance innovation with safety, supporting the healthy development of the virtual asset ecosystem in Hong Kong.
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Frequently Asked Questions
What is the new SFC regulation for virtual asset platforms?
The new rule requires all virtual asset trading platforms operating in Hong Kong to obtain a license from the SFC. Platforms that do not apply must close their local operations.
How does this affect retail investors?
Retail investors will eventually be able to trade on licensed platforms that comply with strict safety and transparency rules, offering better protection against fraud and financial loss.
Are any platforms currently licensed?
As of now, no virtual asset trading platform has been fully approved by the SFC to serve retail investors. The public is advised to exercise caution when using unregulated platforms.
What should I do if I use an unregulated platform?
The SFC advises investors to be aware of the risks and consider moving to regulated platforms once they become available. Always conduct due diligence before investing.
Will this regulation hinder innovation in the sector?
On the contrary, the framework is designed to support sustainable growth by increasing consumer confidence and reducing systemic risks.
Where can I learn more about token due diligence and compliance?
You can 👉 access professional resources on asset compliance for detailed guidance and updates.