According to an announcement made on Tuesday, Hong Kong’s Securities and Futures Commission will begin accepting applications from June 1 for licenses for crypto trading platforms.

In February, the SFC invited public feedback on its initial recommendations.

Stablecoins – crypto assets pegged to other assets – “should not be allowed for retail trading until the jurisdictions planned regulations for this asset class take effect.

The rulebook specifically bans crypto-gifts, designed to encourage retail customers to make investments – this includes airdrops.

In the guidelines, which have been modified in some cases based on feedback from the public, the platform operators are expected to do their due diligence. They also stress that inclusion in two acceptable indexes is only the minimum requirement for listing for trading.

According to the SFC rules, crypto exchanges must maintain at all time a minimum of 5,000,000 Hong Kong Dollars ($640,00). At the end of every month, they are required to submit to the SFC the platform’s liquid capital available and needed, as well as an overview of bank loans and advances, as well as credit facilities, as part of a profit-and-loss analysis. According to rules, tokens approved on regulated exchanges must have a “track record” of 12 months.

Document also includes more information on how to allow retail investors to access trading platforms, and conduct due diligence when listing tokens. Tokens that are listed on exchanges must undergo due diligence procedures, even if the tokens have already been listed on other platforms. Independent assessors will be required to audit smart contracts. According to the conclusions, platform operators do not have to appoint external independent members to token review comittees as long as they deal adequately with conflicts of interest.

The SFC allows platforms to separate client assets from their own through escrow arrangements or by setting aside funds on the licensed platform. Platforms should cover all client virtual assets.

The SFC responded to the suggestion that third-party custodians be hired to safeguard client assets. Since there is no regulatory framework for virtual assets custodians, this would hamper their supervision and enforcement.

The SFC has said that it will consult on a separate review of allowing derivatives. It acknowledges the importance of these products for institutional investors.

implements the Financial Action Task Force (FATF) Travel Rule for sharing information about crypto transactions between financial institution. The SFC stated that when the required information can’t be sent to the beneficiary immediately, it will accept the submission as soon after the transfer of virtual assets as possible until January 1, 2024.

These guidelines include clarifications of anti-money laundering regulations and the criteria used to fine platforms that violate them.

The revised guidelines will be in force from June 1.

Hong Kong proposes rules for crypto trading platforms

Updated (May 23, 1120 UTC) Added details on restricting the access of retail traders to stablecoins.

Sandali Handagama is the editor.