Hong Kong Introduces new Licensing Guidelines for Crypto Exchanges

Regulation plays a crucial role in legitimizing the cryptocurrency industry. Policymakers in Hong Kong have introduced a new set of guidelines. All domestic trading platforms will be impacted by these changes.

Announced during Hong Kong Fintech Week, regulators introduced new guidelines for cryptocurrency exchanges. This applies specifically to companies trading assets classified as securities. 

Extra Regulation in Hong Kong

The new relies heavily rely on the framework that was in place already. It spans AML, CFT, and KYC requirements, as well as market manipulation and auditing, among other crucial aspects.

Cryptocurrency exchanges will largely adhere to the same rules as securities brokers and automatic trading systems providers. 

One interesting aspect is how the guidance limits exchanges in terms of cold wallet holdings. This will only be allowed for up to 2% of clients’ assets. 

Not necessarily the most secure solution, considering how hot wallets are a prime target for criminals. 

However, it is also a measure to ensure clients can always remove their funds from the platform accordingly. 

Further guidance is also provided regarding forks and airdrops. Those two forms of cryptocurrency are often of concern among holders. Hong Kong is one of the first countries to officially regulate those “earnings” accordingly. 

A clear distinction is made between cryptocurrencies and securities. Bitcoin is not  a security, but most ERC-20 tokens will fall into this category.

Any exchange providing access to even one security asset will need to adhere to the SFC’s new rules. They will also need to obtain two specific licenses prior to offering these services to their customers. 

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