Hong Kong to explore legalizing retail crypto trading

Hong Kong is taking steps to legalize retail trading of cryptoassets, in a reversal that contrasts with Beijing’s crackdown on such transactions in mainland China.

The Chinese territory’s regulators are also investigating the listing of crypto exchange-traded funds, Hong Kong’s financial authorities said on Monday, as the city’s rivalry with Singapore for the regional financial hub intensifies.

The Securities and Futures Commission has been “actively looking at setting up a regime to authorize ETFs that provide exposure to mainstream virtual assets with appropriate investor protection safeguards,” said Deputy Managing Director and CEO Julia Leung.

“At the initial stage, we expect the underlying assets to be limited to bitcoin futures and ether futures traded on the Chicago Mercantile Exchange,” Leung said at the government’s FinTech Week, one of the first major financial events held after Hong Kong was scrapped the hotel quarantine last month.

The SFC will conduct a public hearing on how retail investors can be given an appropriate degree of access to digital assets under the new licensing regime, the Hong Kong government said. Rules currently limit crypto trading to institutional investors with a portfolio of at least HK$8mn ($1mn).

Hong Kong’s move comes as Singapore looks to tighten the threshold for crypto trading, with new restrictions expected to be rolled out. Last year, Beijing declared all activity related to digital coins illegal.

Speaking at FinTech Week via video after catching the coronavirus, Hong Kong’s chief financial officer Paul Chan said the city was “open and inclusive” regarding digital assets. The statement comes after Covid curbs have undermined Hong Kong’s status as an economic hub and led to an exodus of residents.

“We want to make our policy stance clear to global markets to demonstrate our willingness to explore financial innovation together with the global virtual asset community,” Chan said.

A bill to establish a statutory licensing regime for virtual asset providers is now going through Hong Kong’s Stamp Act and is expected to come into effect in March next year.

Charles Li, former chief executive of Hong Kong Exchanges and Clearing, which runs the city’s stock exchange, said of the policy announcement: “I think it will move the psychological needle quite a bit, and at least allow the conversation [about digital assets in Hong Kong] happen.”

But he warned that many parts of the industry had “imported all the crap and all the fraud that we’ve been dealing with in traditional finance for over a hundred years. And there is a new generation of people who are willing to be robbed.”

Others were more sanguine. “Hong Kong has a rich history of foreign currency retailing and we have believed for some time that this could one day be replicated with virtual currencies. That day has come,” said Vince Turcotte, director of digital assets at Hong Kong-based Eventus.

“The Importance of Participation of Private Investors to [virtual asset service providers] cannot be overestimated. Generating sufficient liquidity and order flow from investors and speculators in virtual assets, especially in cryptocurrencies, is critical to market making and VASP business models,” Turcotte added.

Additional reporting by William Langley in Hong Kong

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