Hong Kong’s Securities and Futures Commission (SFC) is considering regulating the trading platforms of cryptocurrency, rather than banning them.
On Monday, the SFC’s outgoing chairman, Mr Carlson Tong Ka-shing, said a total ban of the crypto exchanges is not the right approach given that today’s internet world allows cross-border trading.
Mr Tong added that Hong Kong’s securities watchdog is considering a fresh approach, as most current digital tokens, as structured, are not deemed securities.
In July, the SFC said in its annual report that it is keeping “a close watch” on cryptocurrency and initial coin offerings and will intervene when appropriate.
Bring on the regs
Several crypto trading platforms are operating in Hong Kong, such as Tidebit, Gatecoin and BitMEX. Although they remain unrestrained to date, their operators are in favour of regulation.
“There are always risks when converting real-world money into cryptocurrency. There is a need for clearer guidelines for us to follow when it comes to holding clients’ assets and reporting unusual activities to the regulators,” Mr Tsang chief operating officer of Tidebit, tells Harbour Times.
“We, as a trading platform need guidelines on how to partner with custodians to safeguard our clients’ assets. And when we spot unusual transactions, in what circumstances should we intervene and report them to the regulators?” he explains.
For example, in Australia, when the transaction involves over A$20,000, the regulators need to be notified.
Mr Tsang adds that definitions of anti-money laundering (AML) and know-your-customer (KYC) procedures need to be more specific as well.
His view is shared by Mr Brad Maclean, chief operations officer of Gatecoin, who also welcomes regulation.
“Regulation will ensure accountability and better transparency across platforms,” he tells Harbour Times.
“There should be a clear and considered framework outlining guidelines of what an exchange can and cannot do, including how exchanges have policies for holding clients’ funds preventing market manipulation, security and compliance,” Mr Maclean suggests.
He says it is similar to the approach taken in other jurisdictions such as Japan and Estonia.
“Clear and concise regulation will be important to allow mainstream adoption but also to ensure investor protection. At the moment most of the issues in the industry are due to lack of regulation, enforcement and clear guidelines,” he notes.
Mr Tsang from Tidebit notes that Hong Kong has lagged behind other neighbouring countries regarding regulating the crypto trading platforms.
“Less developed places such as the Philippines and Thailand have already introduced licenses for them. Taiwan will also roll out guidelines by the end of this year,” Mr Tsang notes.
Mr Maclean also says licensing would provide access to bank accounts which would need to be maintained locally for client transfers.
Lawmakers also give a positive response to the SFC’s proposal for regulating crypto-exchanges in the city.
“There are currently no laws or rules in Hong Kong [concerning crypto-transactions]. Citizens have no way to hold any organization accountable,” Mr Ronick Chan, a legislator representing the financial sector, tells Harbour Times.
He also urges the authorities to take a “careful approach” to the digital tokens.
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