Hong Kong to regulate digital asset exchanges

Getting your Trinity Audio player ready...

Hong Kong’s Securities and Futures Commission (SFC) has called for public feedback on its proposed digital currency exchange licensing regime set to kick in this June.

It has asked the public for opinions on whether centralized digital currency exchanges in the country should be allowed to serve retail customers and, if so, what measures should be implemented to protect them.

The SFC’s proposed regulatory guidelines are based on existing requirements for securities brokers and include the safe custody of assets, compliance with KYC/AML rules, cybersecurity standards, proper accounting and auditing, robust risk management, and more.

Any person or business providing services related to digital currencies must apply for a license. The SFC will publish a publicly available list of licensed providers and require any business or exchange without one to shut down and vacate Hong Kong.

The SFC’s CEO, Julia Leung, mentioned 2022’s digital currency market meltdown, pointing to the collapse of FTX as one reason for the push towards clearer guidelines and investor protections.

The push towards regulation is relentless and will only intensify

At CoinGeek, we’ve been telling readers for years that the Wild West, the crypto-anarchist version of the industry, would not last. As with every other industry, the regulators eventually catch on, recognize the risks to citizens and the wider economy, and put pen to paper to bring order to the chaos.

This vision is coming true with every passing day. All over the world, regulators are aiming at rogue operators in the industry and pushing out those who don’t play fair. Whether it’s the U.K. creating new categories of personal property to protect users or the European Union banning anonymous transactions, laws are being drafted to protect everyday people from the predatory elements in the industry and to stamp out crime.

While FTX hastened the pace of this move towards a more regulated digital currency industry, the truth is it was already well underway before the Bahamas-based exchange collapsed.

What does this mean for the industry? It means that the money laundering, wash trading, and criminal activity that has characterized it so far will be slowly but surely squeezed out, giving rise to a new era of utility and value creation that will see scalable blockchains like Bitcoin SV thrive.

Token prices will also be affected. As digital currency exchanges everywhere are forced to comply with new regulations, there’ll be much less opportunity for manipulating prices. It’s no secret that the stablecoin Tether is used to pump the prices of otherwise worthless tokens, but when exchanges have to keep accurate records of who is making deposits, check the source of funds, and comply with AML regulations, this will become much more difficult. We could see a dramatic drop in the price of coins like BTC and other popular altcoins, potentially dampening demand for them for some time.

Speaking of Tether, the proposed Hong Kong regulations could spell trouble for it. Tether has been reluctant to reveal anything about its business, operating in a cloak-and-dagger manner in an unregulated jurisdiction for years. The introduction of the regulations proposed by Hong Kong’s SFC, which extend beyond exchanges to any company or person providing services related to digital currencies, could make life much trickier for a firm that has been convicted of multiple criminal offenses.

In any case, robust regulation to protect retail speculators and digital currency users from shady operators is a good thing. That the industry would be brought into alignment with financial regulations was always inevitable. Legitimate operators have nothing to fear.

Watch: Blockchain for Data Integrity & Business Process Management