Hong Kong's financial regulator is introducing licenses for cryptocurrency exchanges. Notably, the new rules, which were introduced today, apply only to platforms offering virtual securities.

The new regulations cover custody, know-your-customer, the storage of crypto assets and the provision of products by exchanges, which can only be offered to “professional investors” as defined by the city's financial watchdog, the Securities and Futures Commission .

In over 60 pages, the SFC outlines a vision which places particular emphasis on the safe custody of crypto-assets. It sets out the criteria for platforms for inclusion of a new virtual asset for trading, and the requirements for licensed exchanges. They must, for instance, file monthly reports on their business activities to the SFC. 

Announcing the news, today, Ashley Alder, head of the city's Securities and Futures Commission said: ”The framework will enable virtual asset trading platforms to be regulated by the SFC, a major development which builds on a way forward.”

The framework only applies to centralized trading platforms, operating in Hong Kong and trading “virtual assets including at least one security token,” according to the regulations. Platforms falling outside this remit will not be licensed or regulated by the SFC.

However, there is no definition in the regulations of what constitutes a tokenized security. So it’s unclear whether an exchange dealing with BTC and ETH fiat pairs is exempt, one crypto enthusiast pointed out on twitter.

Possession of a license will not protect investors from fraud, the regulations point out. The watchdog can choose whether or not to intervene as licensed platforms will still not be considered stock or futures markets.

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The new regulations have been hailed as a watershed moment for the crypto industry. It's "a seminal moment for financial services in Asia and points to increased acceptance of digital assets as new type of financial instruments," Hugh Madden, CEO of technology and digital asset trading company the BC Group told Reuters.

Meanwhile, Alder also stressed that the SFC is "extremely concerned" about platforms which offer virtual asset futures contracts to the public, especially those that are highly leveraged.

The news comes less than two weeks after China’s President Xi Jinping urged the industry to accelerate the development of blockchain technology.

This is a developing story and will be updated throughout the day.