Applications for crypto trading platform licenses in Hong Kong will start being accepted on June 1, as soon as existing guidelines are officially updated

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Hong Kong’s Securities and Futures Commission (SFC) will begin accepting applications for crypto trading platform licenses on June 1, just as the Guidelines for Virtual Asset Trading Platform Operators will become effective.

After lengthy consultations, the regulator agreed to allow licensed virtual asset providers to serve retail investors, provided that operators comply with the established legal requirements.

At the same time, the permitted business activities will be somehow limited. For instance, SFC does not yet allow stablecoin trading for retail customers, as this asset class requires separate regulations, believes the institution. In addition, the new rulebook explicitly bans crypto “gifts,” designed to incentivize retail customers to invest. These likely include airdrops.

The guidelines have been consulted upon since February. During this time, the SFC received 152 written submissions from industry and professional associations, professional and consultancy firms, market participants, licensed corporations, individuals and other stakeholders. While some respondents sought clarifications, the regulator has modified or clarified some of the proposed requirements.

Per the latest version, licensed?crypto exchanges are to maintain no less than 5,000,000 Hong Kong dollars ($640,00) in capital at all times and have at least a 12-month “track record” on approved tokens. To enhance transparency, at the end of each month, they will submit the platform’s available and required liquid capital, a summary of bank loans, advances, and credit facilities, as well as a profit and loss analysis to the SFC.

All tokens listed on exchanges will go through due diligence procedures, such as smart contract audits by independent assessors. At the same time, crypto platform operators will not need to appoint independent external members to token review committees as long as they adequately deal with conflicts of interest.

While customer virtual assets should be fully covered by each platform’s compensation arrangement, SFC allows crypto exchanges to segregate clients’ and their own assets through an escrow arrangement or via the licensed platform setting funds aside. Since there is no regulatory regime for custodians of virtual assets in the country, third-party custodians could be engaged to safe-keep client assets.

Operators of virtual asset trading platforms ready to comply with the SFC’s new standards are welcome to apply for a licence, while others should proceed to an orderly closure of their business in Hong Kong.