HONG KONG – Hong Kong's financial regulator will announce a framework for cryptocurrency exchanges later on Wednesday, CEO Ashley Alder told a fintech conference in the city.
Market watchdogs around the world are debating whether to regulate the cryptocurrency industry and how they are expanding their focus above all to protect investors from digital asset fraud, although Facebook's launch of Weight has led many to look at broader systemic risks.
Several of the world's largest cryptocurrency exchanges operate in Hong Kong, but Alder said that until now they had largely escaped regulation because most virtual assets fall outside the definition of security.
They will cover aspects of custody, knowledge of your customers, money laundering rules and market manipulation, as well as issues specific to the cryptocurrency industry.
Age, the head of the SFC, first announced digital currency initiatives a year ago at Hong Kong's Fintech Week 2018, including a "sandbox" for cryptocurrencies, as a way for the regulator and exchanges to discuss ways to monitor digital currencies.
Since then, he said, "We met with a large number of crypto platform operators to see … if any platforms were actually capable of operating in a regulated environment."
Age added, "After an in-depth examination of their unique technical and operational functions, we concluded that someone could be regulated by us."
Exchange may apply to be regulated from Wednesday.
"Ashley Age's announcement of a digital asset trading platform is an important element of financial services in Asia and points to increased acceptance of digital assets as a new type of financial instrument," Hugh Madden, President and CEO of BC Group, a technology and digital real estate company said in an e-mail statement.
The company refused to say at this stage whether it would seek to be regulated by the SFC.
The regulator will take an "opt-in" approach, as regulations will not apply to exchanges unless they trade something which is a security, which, said Age, did not include bitcoin.
He also said that another statement issued later on Wednesday by the SFC would emphasize the risk of trading virtual asset futures, and warned that those offering such trading "may well carry out an illegal activity", according to to Hong Kong laws, whether related to securities and futures or gambling.
(Reporting by Alun John; Editing by Tom Hogue and Clarence Fernandez)