Summary of 8 points on Hong Kong's cryptocurrency regulatory consultation: No buying or selling of stablecoins for the time being, exchanges have a heavy responsibility to protect retail investors
The regulatory framework for stablecoins is expected to be implemented in 2023/24. We believe that stablecoins should not be included for retail trading before they are regulated in Hong Kong.Source: “Consultation Summary of the Securities and Futures Commission”
整理：Elponcho，Chain News
The Hong Kong Securities and Futures Commission released a public consultation opinion on the regulatory framework this afternoon (5/23), which will be officially implemented on 6/1. Below is the content organized by Chain News.
Table of Contents
- Can retail consumers use licensed exchanges?
- Do licensed exchanges need to confirm investor knowledge?
- Should exchanges specify risk tolerance limits?
- Do exchanges have a disclosure responsibility for virtual assets?
- Do exchanges need to verify smart contracts?
- What types of cryptocurrencies can exchanges list?
- Can exchanges temporarily not provide trading of stablecoins?
- Can exchanges engage in derivatives trading?
1. Can retail consumers use licensed exchanges?
Yes, provided that they comply with a series of proper investor protection measures covering the establishment of business relationships with clients, governance, disclosure, as well as token due diligence and inclusion.
2. Do licensed exchanges need to confirm investor knowledge?
Yes, whether for professional individual investors or retail investors, exchanges must ensure that they have a sufficient understanding of virtual assets to obtain investor protection.
3. Should exchanges specify risk tolerance limits?
No, the Hong Kong Securities and Futures Commission believes that it may not be appropriate for the SFC to set guidelines in this regard, as platform operators (rather than the SFC) are best positioned to impose limits based on the information obtained during the "Know Your Customer" (KYC) process.
4. Do exchanges have a disclosure responsibility for virtual assets?
Yes, the SFC stated that although it is difficult to obtain and verify information from issuers, licensed exchanges should still act with appropriate skill, care, and diligence. They should take all reasonable steps to obtain information regarding each virtual asset as the basis for their token inclusion decisions.
The Hong Kong SFC stated: Even if another licensed exchange includes a token, it does not exempt other exchanges from conducting due diligence.
5. Do exchanges need to verify smart contracts?
It is merely an expectation; the SFC only hopes that licensed exchanges will appoint independent assessment experts or, where reasonable, rely on audits conducted by independent assessment experts appointed by another party (such as the issuer) to reduce investor risk.
6. What types of cryptocurrencies can exchanges list?
The recommended guidelines are as follows:
- Tokens that retail investors can buy and sell should be less susceptible to market manipulation.
- Tokens must belong to eligible large virtual assets, meaning they have been included in at least two accepted indices launched by two independent index providers.
- High market capitalization does not equate to high liquidity; exchanges must ensure that tokens have high liquidity.
7. Can exchanges temporarily not provide trading of stablecoins?
Yes, the Hong Kong SFC stated that stablecoins that cannot maintain their pegging function or cannot return investor funds upon redemption cannot be called stable. This risk led the SFC to believe that relevant financial regulations will be implemented in 2023 to 2024, and that stablecoins should not be included for retail trading before formal regulation. "Regulatory arrangements for stablecoins are expected to be implemented in 2023/24. We believe that stablecoins should not be included for retail trading before they are regulated in Hong Kong."
8. Can exchanges engage in derivatives trading?
Not yet decided. The Hong Kong SFC stated: "We appreciate the detailed and substantive opinions submitted by respondents on this issue. As we explained in the consultation document, the SFC recognizes the importance of virtual asset derivatives to institutional investors. We will consider the large number of opinions received and conduct an independent review at the appropriate time."
