Interpretation of Hong Kong’s 324-page Encrypted Trading Regulatory Regulations in One Article: One Coin, One Adjustment, Stablecoins Cannot Be Traded

The Hong Kong Securities Regulatory Commission issued the "Guidelines for Encrypted Asset Trading Platforms". It does not mean that the currency will be listed successfully if the volume is large, and the stable currency is not suitable for trading.

Written by: Mori Goro

According to the latest news from ChainDD, Hong Kong, which aims to become a crypto asset trading center, will allow retail investors to trade crypto assets under the new licensing system of the crypto asset platform from June 1.

On Tuesday (May 23), the Hong Kong Securities and Futures Commission (SFC) released the "Consultation Conclusions on Proposed Regulatory Regulations Applicable to Operators of Virtual Currency Trading Platforms Licensed by the Securities and Futures Commission", It is commonly known as Hong Kong Encrypted Asset Supervision New Regulations. ChainDD brings you a new interpretation of the new rules of the Hong Kong encryption trading market.

Hong Kong has been aiming at the throne of Asia and even the global encryption trading center. Its attitude and action have been greatly reflected in the past year. For details, please refer to the previous article of ChainDD [ChainDD Exclusive] It is expected to attract more than 80 encryption companies within half a year. Will All in Hong Kong Become a Global Crypto Hub?

Industry giants have submitted comments

From February to the end of March, this consultation case on trading rules received a total of 152 replies from the industry, including Amber Group, Ripple Labs, Binance.com, Huobi, OKX Hong Kong, etc. Most of the opinions supported the SFC’s Licensing management, a proposal to legalize cryptocurrency transactions.

Liang Fengyi of the Securities Regulatory Commission said, "Providing clear regulatory expectations can promote the development of responsible persons. Hong Kong's free virtual asset regulatory framework follows the principle of 'same business, same risk, same rules', aiming to provide proper investment protection and control. risk, thereby promoting sustainable development of the industry and supporting innovation.”

Platform operators are prohibited from gifting specific currencies

What everyone is most concerned about should be how the trading platform obtains a trading license. The SEC emphasized. At least until June 1, the Hong Kong Securities Regulatory Commission has not approved any license applications for exchanges. The Securities Regulatory Commission reminds investors that there are still many trading platforms that are still accessible to the public that are not regulated by the Hong Kong Securities Regulatory Commission.

The China Securities Regulatory Commission issued the "Guidelines for Encrypted Asset Trading Platforms". This guidance document will become a licensing requirement. At the same time, trading platforms need to conduct platform self-examination in accordance with the provisions of the "Hong Kong Securities and Futures Ordinance" and the "Anti-Money Laundering Ordinance". . The China Securities Regulatory Commission will also issue relevant guidelines in succession.

In the consultation conclusion, the China Securities Regulatory Commission stated that there are also relevant codes of conduct for platform operators, such as stipulating that platform operators should not provide gifts related to the purchase and sale of specific cryptocurrency currencies. This means that the "coin-throwing behavior" of some trading platforms will be illegal.

Hong Kong currently does not have a regulatory system for crypto asset custodians, so custody of crypto assets is more difficult. Therefore, the SFC stated that it supervises companies that directly exercise control over customers' encrypted assets (that is, wholly-owned subsidiaries of licensed encrypted asset trading platforms). At the same time, the China Securities Regulatory Commission is also monitoring new asset custody technologies, such as secret key storage requiring certification.

For the specific "Guidelines Applicable to Encrypted Asset Trading Platform Operators" document, please click on the link to view the Specific Document Appendix A Part published on the official website of the Hong Kong Securities and Futures Commission. This document has some amendments to the guidelines.

**Large encrypted assets are allowed? not **

The China Securities Regulatory Commission stated that the trading platform needs to conduct due diligence on the currency of the platform, and the licensed exchange should conduct due diligence every time each currency is listed, instead of exempting it according to the currency.

ChainDD found that this is consistent with Japan's current encryption regulation law that has been implemented for more than five years. It’s just that every time a coin is listed on a Japanese licensed exchange, the procedures are extremely cumbersome, which also limits the development of the Japanese encryption trading industry.

At the same time, the China Securities Regulatory Commission believes that the time span of due diligence should be set at 12 months of past transaction records. Although such a time setting cannot avoid a crash, setting a specified time span is undoubtedly conducive to supervision.

For the audit of smart contracts, the China Securities Regulatory Commission believes that the exchange should hire independent evaluation experts, or rely on independent evaluation transfers commissioned by another party (such as the issuer) under reasonable circumstances to conduct audits. This item is extremely important.

In addition to the regulations, the SFC stated that when issuing retail encrypted assets, platform operators also need to comply with the prospectus system and regulations under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (the "Companies Winding Up Ordinance"). The investment offer regime under Part IV of the Securities and Futures Ordinance. Although the China Securities Regulatory Commission does not force the issuing institution to submit a separate legal proposal to the regulatory agency because of the high cost, but in special circumstances, the China Securities Regulatory Commission has the right to require the issuing institution to submit legal opinions on specific tokens.

For the currency of the transaction, the SFC stipulates that it should be included in at least two acceptable and investable indexes provided by independent suppliers. And, in order to comply with the IOSCO Principles for Financial Benchmarks, one requires an index provider with experience in publishing indices for traditional securities markets.

The China Securities Regulatory Commission specifically pointed out that not all encrypted asset currencies with large volume and market value must be highly liquid, so due diligence on trading platforms is particularly important.

Stablecoins cannot be traded

The Hong Kong Monetary Authority (HKMA) has released the "Summary of Encrypted Assets and Stablecoin Escape Documents" in January 2023, and the regulatory arrangements for stablecoins will be announced in 2023-24. Before the announcement, stablecoins cannot provide transaction services in the retail market.

At the same time, regarding the trading of encrypted asset derivatives, the China Securities Regulatory Commission stated that it will conduct separate inspections at an appropriate time, which will not be involved this time.

Investors need to have industry experience

In its conclusions, the SFC said that licensed platforms should “comply with a robust set of investor protection measures, including onboarding, governance, disclosure, and token due diligence and onboarding, before offering trading services to retail investors.” In other words, investors who trade encrypted assets need certain financial knowledge, as well as the ability to assess risks and risk tolerance.

At present, Hong Kong Securities Regulatory Commission opens the page on the official website to conduct an investor information inventory inquiry page, which includes the previous trading and investment experience and working experience of encrypted asset investors.