Hong Kong Cryptocurrency Regulations

In addition, where an ICO involves an offer to the Hong Kong public to acquire “securities” or participate in a CIS, registration or authorisation requirements under the law may be triggered unless an exemption applies. The statement also noted that parties engaging in the secondary trading of such tokens (e.g. on cryptocurrency exchanges) may also be subject to the SFC’s licensing and conduct hong kong cryptocurrency exchange requirements; and that certain requirements relating to automated trading services and recognised exchange companies may be applicable to the business activities of cryptocurrency exchanges. In particular, the SFC reminded market participants of the requirement to hold a licence to trade cryptocurrencies that amount to “securities”, as defined in the Securities and Futures Ordinance.

hong kong cryptocurrency exchange

As a global financial hub, Hong Kong has been seeking to attract financial technology innovation – the city hosts a BIS Innovation Hub – whilst managing the potential risks that it brings. “With the opportunities and advantages http://encuentrosmuseologia.uma.es/tradesanta-trading-bot-review/ of operating a financial institution in the United States comes the obligation for those businesses to do their part to help in driving out crime and corruption,” said Audrey Strauss, Acting Manhattan US Attorney.

Ripples Xrp Cryptocurrency Surges In What May Be Another Coordinated Buying Frenzy

The position paper emphasises that the SFC will only grant licences to platform operators which are capable of meeting robust regulatory standards, being standards comparable to those which apply to licensed securities brokers and automated trading venues but which also incorporate additional requirements to address specific risks associated with virtual assets. For example, the SFC will impose licensing conditions requiring that platform operators offer their services exclusively to professional investors, only service clients who have sufficient knowledge of virtual assets and maintain stringent criteria for the inclusion of virtual assets on their platforms. In addition, licensed platforms will be placed in the SFC Regulatory Sandbox for a period of close and intensive supervision. However, the position paper also makes it clear that, even if the SFC licenses and supervises a virtual asset trading platform, the non-”security token” virtual assets traded on the platform are not subject to the authorisation or prospectus registration provisions that apply to traditional offerings of securities or collective investment schemes. Moreover, the SFC has no power to grant a licence to or supervise platforms which only trade virtual assets or tokens which are not “security tokens”.

More progressive frameworks are currently being constructed in smaller jurisdictions such as Gibraltar and Malta. In the Statement, the SFC stated that it had received various complaints from investors, including allegations of misappropriation of assets, market manipulation and fraud. Some investors also complained that they were unable to withdraw fiat currencies or cryptocurrencies from their accounts maintained with cryptocurrency exchanges.

Where Security Tokens are “securities” as defined under the SFO, then unless an applicable exemption applies, any person who markets and distributes Security Tokens is required to be licensed or registered for Type 1 regulated activity under the SFO. Intermediaries which market and distribute Security Tokens are required to ensure compliance with all existing legal and regulatory requirements.

  • In response, the SFC has warned seven cryptocurrency exchanges in Hong Kong or with connections to Hong Kong that they should not trade cryptocurrencies which are “securities” under the Securities and Futures Ordinance (the “SFO”) without a licence.
  • The SFC issued a further statement on 6 November 2019 warning investors about the risks associated with the purchase of virtual asset (e.g. Bitcoin) futures contracts, focusing on the fact that they are largely unregulated, highly leveraged and subject to extreme price volatility.
  • Most of them either confirmed that they did not provide cryptocurrency trading services or took immediate rectification measures, including removing the relevant cryptocurrencies from their platforms.
  • The fact that the SFC is now turning its attention to cryptocurrency exchanges should come as no surprise.
  • Most of them confirmed their compliance with the SFC’s regulatory regime or immediately ceased to offer the relevant digital coins/tokens (“digital tokens”) to Hong Kong investors.
  • The 11 December 2017 circular and the 6 November 2019 statement are discussed further in the response to question 14 below.

The Crypto.com Exchange enables users to trade digital assets on the most liquid and secure platform in the market through its web interface, trading API, and Crypto.com App with low fees for both individual and corporate customers. The Securities and Exchange Commission considers cryptocurrencies to be securities since March 2018.

According to our data, USD to HKD is the most popular HKD Dollar exchange rate conversion. It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website. Germany’s BaFin has issued a 1st advisory letter on the classification of tokens crypto wallet vs exchange as financial instruments. The Bank of England has published a discussion paper to assess the risks and benefits of a Central bank digital currency. From October 2020 to January 2021, the European Central Bank opened a consultation on a digital euro, ie the project of a crypto-asset issued by the ECB, which could be used as a digital payment instrument. The sanctions proposed are similar to those applicable to financial institutions already regulated under the anti-money laundering legislation.

Hong Kong

The key substantive guidance published by the SFC in this area came in the form of a statement and a circular issued on 1 November 2018. Taken together, they set out a new regulatory approach for virtual assets, through the regulation of the management and distribution of virtual asset funds, such that investors’ interests are protected at either the fund management level or distribution level or both. The measures do not amend the law or the definitions of “securities” or “futures contracts”, but instead clarify existing requirements and impose new requirements primarily in the form of licensing conditions on intermediaries. In contrast, while Hong Kong’s Securities and Futures Commission launched a regulatory framework specifically for cryptocurrency trading platforms last year, hong kong cryptocurrency exchange this was restricted to those platforms that traded an asset officially classed as a security or future, not just tokens like bitcoin. Bitfinex is a cryptocurrency trading platform that permits the exchange of cryptocurrencies including bitcoin, litecoin and ether. Through its margin trading and lending service, users are able to lend funds as margin to other traders to enable them to open leveraged positions. In return, users have been issued a new ‘BFX’ token, which represent a debt claim (or potential redemption of iFinex Inc. stock) at some point in the future.8 This represents the first ever issuance of a digital token in place of a company’s debt obligation.9 How this novel insolvency solution will be received by users, regulators, and insolvency officials remains to be seen.

Can Bitcoin be stolen from Coinbase?

Bitcoins are held in wallets and traded through digital currency exchanges like Coinbase. Bitcoin users are assigned private keys, which allows access to their bitcoins. Hackers can infiltrate wallets and steal bitcoins if they know a user’s private key.

Hints at the likely direction regulation will take may be gleaned from other parts of the world. While certain jurisdictions, such as Mainland China, have taken a hard line on digital token issuers and exchanges, banning many of their activities outright, it is unlikely that the SFC will take this approach. It is more probable that Hong Kong will draw on the more positive models adopted in other major financial centres. For example, the US and Japan have introduced requirements for cryptocurrency exchanges to be registered with local regulators, although so far they do not have a comprehensive regulatory framework in place.

My Services

On 9 February 2018, the Securities and Futures Commission (the “SFC”) issued a statement(the “Statement”), cautioning investors again of the potential risks of investing in cryptocurrencies and initial coin offerings (“ICOs”) and using the services of cryptocurrency exchanges. In this regard, it warned investors of the heightened risk of extreme price volatility, hacking and fraud. Hong Kong has not followed China and other jurisdictions in effectively banning cryptocurrency trading and initial coin offerings . However, the government and regulators are monitoring developments to guard against efforts to circumvent regulatory requirements in pursuit of market protection. The potential risks and related regulatory concerns relating to cryptocurrency exchanges and investing in ICOs will continue to be a central focus.

Instead they clarify existing requirements and impose new requirements primarily in the form of licensing conditions on intermediaries. The statement also set out details of a conceptual framework to explore the regulation of virtual asset trading platform operators, which was followed by the publication on 6 November 2019 of a position paper setting out a new regulatory framework for virtual asset trading platforms. In response, the SFC has warned seven cryptocurrency exchanges in Hong Kong or with connections to Hong Kong that they should not trade cryptocurrencies which are “securities” under the Securities and Futures Ordinance (the “SFO”) without a licence. Most of them either confirmed that they did not provide cryptocurrency trading services or took immediate rectification measures, including removing the relevant cryptocurrencies from their platforms. Most of them confirmed their compliance with the SFC’s regulatory regime or immediately ceased to offer the relevant digital coins/tokens (“digital tokens”) to Hong Kong investors. The SFC issued a further statement on 6 November 2019 warning investors about the risks associated with the purchase of virtual asset (e.g. Bitcoin) futures contracts, focusing on the fact that they are largely unregulated, highly leveraged and subject to extreme price volatility. The 11 December 2017 circular and the 6 November 2019 statement are discussed further in the response to question 14 below.

hong kong cryptocurrency exchange

Although the exact vulnerability of the August 2 hack is currently unclear, reports from Bitfinex indicate that it was a sophisticated and technical exploitation.19 Given the lack of current information, it is therefore difficult to state with certainty whether the changes Bitfinex made following the CFTC’s investigation played a role in this hack. Some have speculated that the hosting of a greater number of segregated, but online, customer funds in wallets may have facilitated the hacker’s ability to steal such a large amount (under the old system, the majority of customers’ bitcoins would have been held in cold storage). Although the CFTC’s Bitfinex Order did not affirmatively compel Bitfinex to alter its custodial structure to the existing structure, it is clear that Bitfinex cooperated and constructively engaged with the CFTC from September 2015 onwards, and made “significant changes to the way in which U.S. customers engage” with the Bitfinex platform. This change involved moving from a hot/cold proprietary wallet system to the existing BitGo multi-signature system. whether the person is of good standing and financial integrity (e.g. not being the subject of any bankruptcy or liquidation proceedings). This alert highlights the proposed licensing regime and the reception by industry players. Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies.

Under the AMLO, all individuals and businesses have a statutory duty to report any suspicious activity under a number of legal statutes, such as the Organized and Serious Crimes Ordinance, Drug Trafficking Ordinance, and the United Nations Ordinance. As a global financial hub, the laws around Hong Kong’s Anti-Money Laundering and Combatting the Financing of Terrorism of the financial sector are stringent. https://monsieurtroy.ca/2020/06/11/vidt-datalink/ While knowing of BitMEX’s obligation to implement anti-money laundering programmes because they were serving US customers, the founders formally incorporated the company in the Seychelles – a jurisdiction they believed had less stringent regulations. Britain’s youngest self-made billionaire and Bitcoin exchange founder has been charged in the US with wilfully failing to prevent money laundering.

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As noted in the response to question 2 above, the SFC has issued a number of statements and circulars concerning cryptocurrencies and other virtual assets, one of the focuses of which has been to warn cryptocurrency wallets for beginners investors of the risks inherent in investing in such assets. The SFC’s next move, under its new chairman, Tim Lui Tim-leung, will be watched closely by all those involved in this nascent industry.

hong kong cryptocurrency exchange

The SFC also expects that intermediaries should strictly observe the suitability requirement and the conduct requirements in relation to providing services in derivative products to clients under the SFC Code. In addition, marketing a fund investing in Bitcoin Futures will normally constitute Type 1 regulated activity and managing such a fund may constitute Type 9 regulated activity . The provision of advisory services in relation to Bitcoin Futures may also constitute Type 5 regulated activity . Building on the conceptual framework set out in Appendix 2 to the November 2018 Statement, on 6 November 2019 the SFC published a What is Ethereum position paper setting out a new regulatory framework for virtual asset trading platforms (the “opt-in regime“). Like the original conceptual framework, the opt-in regime effectively applies on a voluntary basis. This is achieved under the opt-in regime by platform operators who wish to be licensed ensuring that they offer trading on their platform of at least one “security token” – being virtual assets which fall within the definition of “securities” under the SFO. This means that the platform operator will fall within the regulatory jurisdiction of the SFC and require a licence for Type 1 and Type 7 regulated activities.

Hong Kong To Regulate Cryptocurrency Trading Platforms

Please mention any key initiatives concerning the use of smart contracts in your jurisdiction. Note also that any distributor which is regulated by the SFC is subject to fit and proper requirements, which extend beyond the scope of its regulated activities and so may well cover an ICO product. The SFC statement, circular and position paper are discussed further in the responses to questions 9-15 below. There is no public list of entities that are subject to Hong Kong’s regulatory sandboxes. We’ll assume you’re ok with this, but you may change your preferences at our Cookie Centre. You can browse, search or filter our publications, seminars and webinars, multimedia and collections of curated content from across our global network.

Fintech and Insurtech have been particular areas of focus for the Hong Kong Government and the key Hong Kong financial regulators, the Hong Kong Monetary Authority (“HKMA”), the Securities and Futures Commission (“SFC”) and the Insurance Authority (“IA”), reflecting Hong Kong’s long-held position as one of the world’s leading international financial centres. This country-specific Q&A provides an overview of Blockchain laws and regulations applicable in Hong Kong.

Can I transfer Bitcoin to my bank account?

Bitcoins can not be withdrawn into a bank account directly. You can either sell them to somebody who then transfers money to your bank account, or you can sell them at an exchange and withdraw the funds from there. Find an online exchange that would buy your bitcoins for some currency (mostly *USD).

In particular, they should comply with paragraph 5.2 of the SFC Code as supplemented by the Frequently Asked Questions on Compliance with Suitability Obligations by Licensed or Registered Persons and the Frequently Asked Questions on Triggering of Suitability Obligations. Under the Guidelines on Online Distribution and Advisory Platforms and paragraph 5.5 of the SFC Code, Security Tokens would be regarded as “complex products” and therefore additional investor protection measures also apply. In addition, intermediaries are expected to observe requirements which are similar to those set out in the SFC’s circular on the distribution of virtual asset funds published on 1 November 2018 and described in the response to question 8 above, namely enhanced selling restrictions, due diligence and information to be provided to clients. The circular was primarily in response to the launch of Bitcoin Futures on the Chicago Mercantile Exchange , which is authorised by the SFC to provide automated trading services, meaning that Hong Kong investors may be able to trade in Bitcoin Futures through an intermediary which is a member of CME. The circular noted that Bitcoin Futures have the conventional features of a “futures contract” as defined in the SFO. Therefore, even though the underlying assets of Bitcoin Futures are not regulated under the SFO, Bitcoin Futures traded on and subject to the rules of those exchanges are regarded as “futures contracts” for the purposes of the SFO. Accordingly, parties carrying on a business in dealing in Bitcoin Futures, including those who relay or route Bitcoin Futures orders, are required to be licensed for Type 2 regulated activity under the SFO unless an exemption applies.

The Commodity Futures Trading Commission considers bitcoin as a commodity and allows cryptocurrency derivatives to trade publicly. Alder noted that the current regulatory system has serious limitations, making it possible for some trading platforms to operate away from the purview of the regulator. “If a platform operator is really determined to remain completely off the regulatory radar, it can do so simply by ensuring that its traded crypto assets are not within the legal definition of a security,” he explained. s will face stringent requirements and retail investors in Hong Kong may find themselves unable to trade virtual assets on exchange, the new proposal will nonetheless step up constructive oversight in the region by establishing rigorous benchmarks and in turn enhance investors’ confidence. The majority of market players are supportive of the licensing regime as it is essential to the development of a robust and dynamic VAs ecosystem and positions Hong Kong to be a hub and market leader for VAs. A virtual asset is defined as a digital representation of value that is expressed as a unit of account or a store of economic value; functions as a medium of exchange accepted by the public as payment for goods or services or for the discharge of a debt, or for investment purposes; and can be transferred, stored or traded electronically. The definition covers virtual assets which are not securities, such as Bitcoin and Ether.