Hong Kong’s new regulations on virtual assets come into effect on 6.1. Retail investors can enter the market as soon as the second half of the year

The Hong Kong Securities Regulatory Commission announced yesterday (23rd) the consultation conclusion on the "Guidelines for Operators of Virtual Asset Trading Platforms", confirming that the regulation of operators of virtual asset trading platforms will take effect next Thursday (June 1) and will Retail investors are allowed to participate.

**SFC Chief Executive Leung Fung Yee emphasized that Hong Kong’s comprehensive virtual asset regulatory framework follows the principle of “same business, same risk, and same rules”, aiming to provide proper investor protection and control major risks, and promote sustainable development of the industry and support innovation. Cai Zhonghui, the interim director of the Intermediary Department of the China Securities Regulatory Commission, predicts that after the new guidelines come into effect, retail investors will be able to buy and sell virtual assets on licensed trading platforms in the second half of this year at the earliest. **

Trading platform new license 6**‧1 accepting applications**

It is reported that new licenses for virtual asset trading platforms under the Securities and Futures Ordinance and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance will also start accepting applications next Thursday. ** As for the existing virtual asset trading platforms, Cai Zhonghui said that there will be no virtual asset trading platforms operating in Hong Kong before next Thursday, and they cannot continue to operate; as for the platforms that have been operating in Hong Kong before that day, there will be a transition period, which must be completed on September 9. Apply to the China Securities Regulatory Commission for a license within one month.

Huang Lexin, director of the Financial Technology Group of the China Securities Regulatory Commission, said that starting next Thursday, overseas virtual asset trading platforms will not be able to solicit business and promote in Hong Kong if they have not established a business in Hong Kong. **At that time, the Securities Regulatory Commission will actively monitor the market situation and take enforcement actions. Cai Zhonghui added that the licensed platform must ensure that its customers have not traded through "over the wall", the platform must abide by the regulations of relevant regions, and ensure that the Internet Protocol address (IP Address) is from an area where virtual assets cannot be traded.

Stable coins are not available for retail trading before they are regulated

One of the key points in the regulation of virtual asset transactions in Hong Kong is whether retail investors are allowed to participate. According to the SFC, the vast majority of respondents to the consultation agreed to provide virtual asset trading services to retail investors.

However, there are opinions that retail investors are not allowed to participate in virtual asset transactions because many virtual assets do not have any real content, or retail investors cannot fully understand and understand the risks involved. In this regard, the China Securities Regulatory Commission stated that it agrees that retail investors must understand the risks involved in virtual asset investment. Therefore, the China Securities Regulatory Commission will continue to work with investors and the Financial Education Committee to educate investors on all aspects of virtual assets and their transactions.

The SFC also emphasized that approval of a licensed virtual asset trading platform to include a virtual asset for retail trading is not a recommendation or endorsement of the virtual asset, nor does it guarantee the commercial desirability or performance of the virtual asset.

Regarding which virtual assets should be allowed to be traded in Hong Kong, the SFC specifically mentioned in the consultation document that the risks of stablecoins have attracted international attention, and related risks have a fundamental impact on the stability of stablecoins, so it is believed that stablecoins are regulated in Hong Kong Before that, it should not be admitted for trading by retail investors.

Derivatives transactions will be reviewed separately

Regarding the trading of virtual asset derivatives, the China Securities Regulatory Commission’s consultation conclusion mentioned that most of the respondents suggested that virtual asset derivatives should be limited to professional investors. If retail investors can trade virtual asset derivatives, comprehensive investor protection measures should be in place.

** The China Securities Regulatory Commission stated that knowing the importance of virtual asset derivatives to institutional investors, it will conduct an independent review in due course. **Although there are other services in the virtual asset market, including income, deposits and lending, etc., the SFC stated that licensed virtual asset trading platforms are not allowed to provide such services. **The China Securities Regulatory Commission emphasizes that the main business of a licensed virtual asset trading platform is to act as an agent and provide a way for customers to match orders. Any other activities may lead to potential conflicts of interest, so additional protection is required. **

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Data source: Hong Kong Investor and Financial Education Council

** Hong Kong regulates the process of virtual assets **

| | | | --- | --- | | _ | November 2018**** The China Securities Regulatory Commission announced its intention to regulate virtual asset trading platforms, and pointed out that the licensing system is voluntary| | _ | December 2020**** The Securities Regulatory Commission issued the first virtual asset trading platform to OSL Digital Securities, a subsidiary of BC Group (863) | | _ | February 2022** The Hong Kong government submitted the "Anti-Money Laundering and Terrorist Asset Raising (Amendment) Bill 2022" to the Legislative Council, proposing to implement a licensing system for virtual asset service providers| | _ | October 2022**** The Hong Kong government issued a virtual asset policy declaration at the Financial Technology Week, expressing its intention to relax virtual assets for retail investors to participate| | _ | December 2022**** "Anti-Money Laundering and Counter-Terrorist Asset Financing (Amendment) Bill 2022" was formally passed by the Legislative Council| | _ | February 2023** The Securities Regulatory Commission issued a consultation document on the proposed regulatory requirements for virtual asset trading platform operators licensed by the Securities Regulatory Commission| | _ | May 2023**** The China Securities Regulatory Commission made a consultation conclusion, and the "Guidelines Applicable to Virtual Asset Trading Platform Operators" will come into effect on June 1, 2023|

** Securities Regulatory Commission: not for virtual assets **

Cooling-off period after transaction

In addition to whether retail investors are allowed to participate, another focus of this consultation on the "Guidelines for Operators of Virtual Asset Trading Platforms" is the protection of investors. There are opinions in the market that insurance products should be imitated to "provide a cooling-off period mechanism" for retail investors before or after virtual asset transactions. However, the Securities Regulatory Commission believes that it is not feasible to set a cooling-off period after the completion of virtual asset transactions, because this will affect virtual assets. Other clients of asset transactions.

The SFC stated that there is currently no post-account cooling-off period imposed on retail clients of intermediaries who conduct other regulated activities, including the provision of automated trading services; , any retail customer who has established a business relationship should have been assessed by the platform operator as suitable for buying and selling virtual assets.

Therefore, **the SFC considers that imposing a cooling-off period after a trade is not feasible because the automated trading service involves matching trades with clients, and unwinding or canceling trades would affect another client of the platform. **

In addition, ** Regarding the opinion that the China Securities Regulatory Commission should prohibit licensed virtual asset trading platforms from providing incentives and monetary benefits to retail investors, the China Securities Regulatory Commission agreed, and pointed out that the "Guidelines for Virtual Asset Trading Platforms" has clearly prohibited the provision of gifts , except for discounts on fees or charges. **

The SFC also reminds that **whether on the platform or off the platform, the operator of the virtual asset trading platform has the responsibility to ensure that any material it publishes about a specific product is fact-based, fair and impartial. **

**【Comment on Business Daily】**Virtual asset supervision should be practical

Hong Kong Commercial Daily commentator Li Mingsheng

At the end of last year, the government issued the "Policy Declaration on the Development of Virtual Assets in Hong Kong", which clarified the authorities' policy stance and guidelines, including supervision through the licensing system; at the beginning of this year, it conducted a public consultation on the proposed regulatory requirements for relevant platform operators; yesterday , the China Securities Regulatory Commission issued relevant consultation conclusions, and the respondents generally expressed their support. After considering the revised regulatory requirements, the "Guidelines Applicable to Virtual Asset Trading Platform Operators" will come into effect on June 1. It can be traded on the licensing platform for half a year. Virtual assets have become an important part of the financial ecology, and Hong Kong, as an international financial center, should not be absent; ensuring that the supervision of virtual assets is real and not false, and that there will be no troubles due to lack of control, will make the market more confident in this and invest more Peace of mind is conducive to the orderly, healthy and sustainable development of this innovative financial product.

With regard to virtual assets, some people think that the upsurge has passed, and Hong Kong’s action is long overdue; but at the same time, some people think that it is in the ascendant, and even the direction of future financial development. Who is right? In any case, virtual assets have been widely included in the asset allocation basket of the financial sector, and potentials are being tapped in areas ranging from blockchain technology to digital currency. If this corner of Hong Kong's financial landscape is missing, it will inevitably be detrimental to its status as an international financial center and asset management center. The so-called missed opportunity is largely based on speculation and speculation, because the transaction volume and transaction price of NFT, encrypted currency, etc. have peaked and dropped. However, this in turn highlights the necessity of supervision, so as not to let investors suffer losses due to ignorance of the king, especially with the lessons learned from the past, Hong Kong can supervise more effectively and avoid going astray.

Without a security premise, it is difficult to have a steady development. The reason why the virtual asset market is risky is because of the lack of supervision. For example, in the United States, "currency disasters" have been frequent in the "currency circle" in the past. It is no stranger to the sudden collapse of virtual asset prices, including some so-called stable coins, and the trading platform will suddenly be unable to trade or stop trading. Customer funds, resulting in investors losing their money... Because of various market chaos, various places are currently tightening supervision. For example, the US Department of the Treasury published an illegal financial risk assessment of global decentralized financial services last month, and the European Parliament In the same month, the world's first regulations aimed at comprehensively regulating the cryptocurrency market were also approved. As for Hong Kong, the SFC's consultation shows that the vast majority of respondents agree with the proposal to allow licensed trading platform operators to provide services to retail investors. Ensuring suitability, good governance, enhanced token due diligence, incorporation criteria and disclosure, safe custody of assets, segregation of client assets, avoidance of conflicts of interest, and cybersecurity in the process of establishing business relationships with clients. Among them, if a platform does not have a license within 9 months after the implementation of the regulations, it will not be able to conduct virtual asset trading business in Hong Kong, nor can it be promoted in Hong Kong. investment risk.

**As stated by Leung Fung-yee, Chief Executive Officer of the China Securities Regulatory Commission, the regulatory framework follows the principle of "same business, same risk, and same rules", aiming to provide proper investor protection and manage major risks, so as to promote sustainable development of the industry and support innovation . ** Hong Kong has to embark on its own path of safe development of virtual assets. After all, if the market has no confidence, no one will participate. Under the leadership of stability, Hong Kong has not been cash-strapped for many years, and the Hong Kong dollar of the United Exchange is also stable. Investors' rights and interests are also fully considered. **Only when the development is balanced and safe, and the supervision of virtual assets is implemented, the market will be orderly and healthy, and sustainable development can be achieved, and a better soil environment can be provided for financial innovation, rather than being reduced to a "cut-off" The frequent disaster area of leek. **