Hong Kong plans to ban bitcoin exchanges from operating without a licence

Cryptocurrency exchanges in Hong Kong face a ban on operating without a licence. The Financial Services and the Treasury Bureau (FSTB) has begun work on the legislation.

In November 2020, the FSTBput forward a legislative proposal, under which it conducted consultations through 31 December. The survey involved industry organisations, individual business and public representatives, as well as politicians.

On 21 May 2021, the regulator published its conclusion, promising to take into account the feedback received and to make the appropriate amendments. The FSTB plans to submit the bill for consideration at the upcoming session of the Hong Kong Legislative Council.

According to the document, virtual asset service providers (VASPs) will be required to obtain perpetual licences to operate from the Hong Kong Securities and Futures Commission (SFC).

Licensed VASPs will be required to comply with AML and KYC. Before the new regulatory framework takes effect, the SFC will publish the regulatory requirements for cryptocurrency companies.

For organisations operating without a licence from the FSTB, penalties of up to $644 000 are provided. Their directors face imprisonment for up to seven years.

VASPs will be able to provide services only to professional investors. In Hong Kong, they are defined as those holding a portfolio valued at at least HK$8 million (~$1.03 million).

The regulator noted that more than 40% of respondents proposed allowing retail traders to trade cryptocurrencies. The department emphasised that the restrictions for them are temporary — as the market develops the decision will be revisited.

In March 2021, in Hong Kong the first licensed platform launched cryptocurrency trading — OSL. The exchange targets institutional investors.

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