Hong Kong Set to Shake Up Cryptocurrency Exchange Licensing Process

Hong Kong Set to Shake Up Cryptocurrency Exchange Licensing Process

Hong Kong will soon be enacting clear rules governing cryptocurrencies. For the first time, the wealthy city will be enacting clear rules regarding the licenses for digital asset exchanges. 


Hong Kong’s Securities and Futures Commission (SFC) is expected to be making some changes which will affect the cryptocurrency space as a whole.

Firstly, all funds which have more than 10% of their investments in crypto-related assets will have to apply for a special SFC license. These funds will also be limited to institutional investors. This applies to all cryptocurrency-related investments, whether they are securities or not.

Secondly, if cryptocurrency exchanges want to be officially licensed, they need to voluntarily apply for the regulatory sandbox. This testing period will limit them to institutional investors, but will help the SFC construct a policy to promotes growth and innovation. After this exploratory stage, the SFC will decide on how to best license and regulate this sector.

The SFC has been known to release guidelines for virtual assets in the past. In November 2018, they established a ‘new regulatory framework’ for virtual asset portfolio managers. They further updated these guidelines in March of this year. 

Currently, there is no clear timetable for either but we can expect concrete changes sometime this year.

Major Changes Expected

As of now, cryptocurrency exchanges in Hong Kong can operate without a license. The SFC, however, is finally taking note of these risks. However, it also acknowledges that it does not have the legal authority to regulate financial instruments which are neither securities nor futures contracts.

Therefore, the question of what is a security will be of central importance in SFC’s deliberations. As of now, Ethereum and Bitcoin are treated as commodities. Security tokens, on the other hand, represent ownership in real-world assets like real estate or fund holdings.

Some have praised the move by the SFC as a recognition that the cryptocurrency space as limited, but others have criticized it. Leo Weese, president of the Bitcoin Association of Hong Kong, has called the regulatory sandbox “a cage that places unreasonable burdens on exchanges.” He fears it may drive blockchain-related investment out of China.

“While Hong Kong was a better place when it did not bother such platforms, it was inevitable this day would come. Exchanges will likely maintain parts of their teams in Hong Kong, but work harder to convince the public of a new narrative that places them outside the SAR,” he wrote online.

So far, however, no exchanges have said they plan to leave Hong Kong due to the SFC’s expected changes.


Do you believe Hong Kong could be a hub for the security token space in the future? Let us know your thoughts below. 

Image courtesy of Regulation Asia. 

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