Cryptocurrency exchanges operating in Hong Kong must to be licenced by the city’s market regulators and will only be allowed to provide services to professional investors if new government proposals are actioned.
The city’s Financial Services and Treasury Bureau (FSTB) published its conclusion on legislative proposals on Friday to enhance its anti-money laundering and counter-terrorist financing regulations. The final report followed a two-month public consultation launched in November.
The document affirms the government’s initial position of subjecting crypto exchanges to the licensing requirements of the Securities and Futures Commission (SFC). Additionally, it also outlines ways to enforce and implement the regime.
Notably, it proposed a fine of 5m Hong Kong dollars ($644,054) and a prison sentence of up to seven years for non-compliant and unlicensed crypto-exchange activities. Service providers that disregard the anti-money laundering and counter-terrorist financing requirements will face a fine of HKD 1m ($128,800) and up to two years in jail.
In addition, it also said that crypto exchange services would be confined to “professional investors”, at least for the initial stage of the licensing regime. An individual must have a portfolio of HKD 8m ($1.03m) to count as a “professional investor.”
The proposal pointed out that cryptocurrencies and virtual assets (VAs) trading has proliferated in recent years. It added that “while VAs are not legal tender and not generally accepted as a means of payment in Hong Kong, we have noticed some VA trading activities operating locally.”
Implementation of the new legislation would see stricter regulation of VA trading in one of the world’s leading financial hubs. The FSTB said it intends to propose legislative changes to turn its proposals into law in the upcoming 2021-22 session of the city’s legislative assembly.
Rollercoaster week for cryptocurrency
Hong Kong’s announcement falls in line with China’s widespread crackdown on VAs that initiated a rollercoaster week of trading for cryptocurrencies. Equally on Friday, China’s State Council’s Financial Stability and Development Committee released a document indicative of the country’s desire to curtail cryptocurrency mining and trading activities.
Last week, three major Chinese financial institutions issued a statement pointing out that virtual currency “is not a real currency and should not and cannot be used as legal tender on the market.”
These blows coming from Beijing sent shockwaves through the cryptocurrency market. Immediately after the announcement, the value of the world’s cryptocurrencies dropped about $50bn, or 2.5% immediately, pushing last week’s staggering losses to roughly $500bn.
The adaptation of new regulations in Hong Kong will most likely add fuel to the fire. Dozens of cryptocurrency exchanges operate in Hong Kong, including some of the world’s largest.
Following the dual announcements out of the two cities, Hong Kong-listed exchange platforms Huobi and OKEx announced they would reduce their services. Over the weekend, stocks of OKEx and Huobi crashed 15% and 20% respectively.
Following the news out of China, some of the country’s major crypto mining companies moved their operations to North America, as reported by TechNode.
One source within a Chinese mining firm said that the company had made arrangements to ship thousands of mining rigs to facilities in Texas in the US and Alberta in Canada. The two regions are top destinations for Chinese mining companies looking to move overseas, the source added.
China accounts for over 65% of the global mining operations. Chinese miners hold large amounts of bitcoin and ethereum. Equally, Chinese investors were active participants in the crypto space contributing around 60% of the trading volume.