Hong Kong is looking to reposition itself as a key crypto hub in the region, reopening trading to retail investors. And given its ties to the People's Republic of China, a country that's been historically anti-crypto, experts suggest that the new crypto rules could serve as a playbook for adoption for the PRC.
The regulatory requirements for virtual asset trading platforms will include "suitable" onboarding processes, disclosures, and more. Tokens to be traded on these platforms will have to pass a "minimum criteria" that will ensure that "retail investors should be less prone to market manipulation."
"We welcome SFC's official stance and commitment to allowing virtual assets trading by retail investors in Hong Kong," Hong Kong-based Lennix Lai, CCO of OKX, told Decrypt. "This is an important milestone for Hong Kong's virtual assets industry as it continues to grow and develop."
Large tokens like Bitcoin and Ethereum are expected to pass given the listing criteria; lower-cap tokens will be in more doubt.
These guidelines are due to come into effect on June 1, 2023, with the Securities and Futures Commission (SFC) issuing licenses to just two crypto firms thus far. "Some adjustments reflected in the final regulations are very positive: for example, removing the prerequisite of obtaining a legal opinion prior to listing a token for retail trading," said Lai.
Hong Kong is a Special Administrative Region controlled by China.
And due to this relationship, the latest crypto rule change may also set the table for reintroducing crypto to mainland China, which effectively banned crypto back in 2017.
"This has been the city’s ‘traditional’ role for most of the time after 1997, Hong Kong’s handover to the People’s Republic of China and the start of the ‘one country, two systems’ model," Flowdesk’s head of legal and compliance Anne-Sophie Cissey, told Decrypt.
With offices in Paris and Singapore, Flowdesk provides trading infrastructure for market-making and other crypto-financial services.
"It is a major development in Chinese thinking since the country’s long-standing ban on digital assets," she said. "Authoritarian regimes are, logically, very averse to anything related to decentralization and transparency, the core values of blockchain technology. Hence allowing Hong Kong to embrace a more crypto-friendly stance towards crypto, from the outside, suggests that Beijing wants to use the territory as a testing ground."
Hong Kong returns to crypto
These recent developments may also return Hong Kong to its status as a crypto hub in the region.
Alongside China’s wider crypto crackdown, the riots that erupted in Hong Kong after the government introduced a bill that would have allowed the extradition of Hongkongers to China dampered the city’s crypto ambitions. The bill was eventually withdrawn.
"Following the crackdown on Hong Kong democracy before and during the COVID–19 pandemic, Hong Kong has lost some of its business appeal," Cissey said. "This is because one of the most enticing features of its business environment, its distinctive regulatory frameworks and institutions, took a hit. Important banks and financial institutions have left or downsized their operations fearing heavy-handed interference from the Mainland."