Hong Kong authorities have proposed a set of new licensing requirements for crypto exchanges that will ban retail investors from buying and selling cryptocurrencies.
According to a Nov. 3 report by the local English language financial news outlet Nikkei Asia, the new measures are meant to bring Hong Kong’s anti-money laundering and terrorism financing regulations on par with the rest of the world. Local secretary for financial services and treasury Christopher Hui commented:
“This [move] will strike a balance between regulation and development for the virtual asset market. […] It will help attract high-quality virtual asset dealers to settle in Hong Kong, strengthening Hong Kong’s position as an international financial center.”
With the implementation of the newly proposed rules, cryptocurrency exchange operators would only be allowed to serve professional investors.
Such investors are defined by Hong Kong regulators as those who hold assets worth over 8 million Hong Kong dollars, equivalent to over $1 million. That is similar to what the U.S. Securities and exchange Commissionion requires to qualify as a “sophisticated” investor.
Hong Kong’s latest move is similar to the measures recently announced by United Kingdom’s financial regulators. As Modern Consensus reported in early October, UK’s Financial Conduct Authority prohibited the sale of cryptocurrency derivatives to retail investors. The regulator clearly states that it believes this category of investors cannot understand such products:
“We believe that retail consumers can’t reliably assess the value and risks of derivatives (contracts for difference, futures and options) and exchange traded notes (ETNs) that reference certain cryptoassets.”
This move makes the advertising campaign organized by the Bitcoin Association of Hong Kong just a few weeks ago rather unfortunately timed. The initiative promoted Bitcoin awareness with ads on billboards facing HSBC and Bank of China offices as well as on bus stops.
The images used for the campaign suggested that the residents of the city should switch their bank accounts for hardware wallets.
Nikkei Asia quoted president of the Bitcoin Association of Hong Kong President Bryan Cheung saying that the new regulations “will only serve to push talent and companies out of” the city. He suggested:
“A more suitable approach could have been through education and awareness initiatives.”