Hong Kong proposes new rules for cryptocurrency exchanges

Chief Executive of Hong Kong’s Securities and Futures Commission (SFC) Ashley Alder proposed a “sandbox” for cryptocurrency exchanges in Hong Kong. A “sandbox” is a mechanism for developing regulation that keeps up with the fast pace of innovation. Currently, cryptocurrency exchanges in Hong Kong are not regulated by the SFC unless the listed tokens are classified as securities or futures. Cryptocurrency exchanges which choose to join the "sandbox" will be monitored by the SFC to ensure compliance.

Mr. Alder said: “The measures announced today allow us to regulate the management or distribution of virtual asset funds in one way or another so that investors’ interests would be protected either at the fund management level, at the distribution level, or both." He also expressed concerns about the current state of cryptocurrency trading: “Outages are not uncommon as is market manipulation and abuse. And there are also, I am afraid, outright scandals and frauds.”

SFC is considering regulating cryptocurrency exchanges with similar regulations such as those of automated trading services or dark pools. SFC said that under the proposed “sandbox”, only professional investors could invest in crypto assets. The fund managers that invest more than 10% of their portfolio in cryptocurrencies will need a license.

The cryptocurrency exchange that join the "sandbox":

  • can't offer any financial incentives
  • can't trade futures or derivatives
  • have to comply with rules for fair treatment of clients
  • have to make efforts to stamp out market manipulation

(Source: Reuters, Financial Times, Bloomberg)