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Licensing Regime for Crypto Services

Under the banner “same activity, same risk, same regulation,” Hong Kong has established a licensing system for virtual asset service providers (VASPs). This framework is designed to facilitate the transition of existing VASPs to the new regulatory environment. However, these providers must submit their applications by February 29 to maintain operations after the transitional period ends. The Hong Kong Securities and Futures Commission (SFC) is preparing to issue “no-deeming notices” to eliminate unqualified entities from the market.

Deadline for Non-compliant Entities

Entities that fail to comply with the new regulations will face a May 31 deadline to cease operations. The focus is also on regulating over-the-counter (OTC) trading venues, which have been involved in fraudulent activities in the past year. A consultation regarding the regulatory framework for these venues is expected to launch shortly.

Investor Caution Urged

While Hong Kong is revamping its regulatory landscape, Mr. Hui has cautioned investors about the inherent volatility of virtual assets (VAs) and advised dealing exclusively with SFC-licensed platforms to mitigate the risk of fraud.

Green Light for Crypto Trading Platforms

Hong Kong has recently approved select platforms to offer Bitcoin (BTC) and Ethereum (ETH) trading to retail investors, subject to strict SFC oversight. Reports indicate that up to ten firms are exploring such investment products, with several possibly launching the region’s first spot crypto ETFs in the coming months.

Emerging Spot Crypto ETFs

HashKey, a certified Hong Kong crypto exchange, is in talks with asset managers about the potential introduction of spot crypto ETFs, hinting at the arrival of Bitcoin spot ETFs as early as the first quarter of 2024. Harvest Fund Management is also reportedly on track to launch a BTC ETF, having approached the SFC with a formal proposal.

Distinctive Legal System in Hong Kong

Despite its proximity to China, Hong Kong continues to assert its distinctive legal system and is establishing itself as a unique player in the cryptocurrency market.

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