Hong Kong has proposed to expedite the licensing process for virtual asset (VA) trading platforms, pushing to become a leading cryptocurrency hub.
In a press release dated 11 December 2024, the Government of the Hong Kong Special Administrative Region detailed a series of initiatives aimed at fostering innovation while ensuring financial stability and investor protection.
Hong Kong to speed up crypto licensing as competition intensifies https://t.co/GQBdujRDBw
— The Block (@TheBlock__) December 11, 2024
Acting Secretary for Financial Services and the Treasury, Joseph Chan, addressed the Legislative Council. Chan said that a “swift licensing process” will be prioritised as the region competes with other global financial centres.
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Strengthening Licensing Framework For Crypto Trading
Chan announced that the Securities and Futures Commission (SFC) would revise its licensing system for commercial trading in cryptocurrency platforms.
The SFC is planning to set up a “consultative panel” in early 2025 to guide licensed trading platform operators. In June 2023, Hong Kong implemented a crypto licensing framework, allowing licensed exchanges such as OSL Exchange, HashKey Exchange, and HKVAX to offer retail trading services.
Moreover, Chan highlighted that a draft legislative bill is planned for the regulation of issuers of fiat-linked stablecoins. The bill, expected to be presented to the Legislative Council within the month, would require issuers to obtain licenses from the Hong Kong Monetary Authority (HKMA).
The report also stated that the authorities are proposing a framework that will enable the licensing of crypto custodians by the end of next year.
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Hong Kong To Adhere To Global Crypto Norms
Hong Kong’s updated regulatory framework, centered on the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), sets a robust foundation for Virtual Asset Service Providers (VASPs) to operate within the region.
This legislative framework requires crypto firms to comply with international standards, including Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) protocols, while obtaining a license from the SFC.
In addition to adhering to global norms such as the Financial Action Task Force’s (FATF) Recommendation 16, which mandates enhanced user and fund information sharing during asset transfers, VASPs are required to implement Customer Due Diligence (CDD) and monitoring protocols.
Complementing this is the HKMA’s 2024 guidance for digital asset custodians, which includes robust governance, asset segregation, and transparent disclosures, to ensure client funds remain protected.
In March 2024, the HKMA launched a regulatory sandbox to promote the safe development of stablecoins. This initiative, stemming from discussions since 2022, was planned to provide a controlled environment for stablecoins to evolve under regulatory oversight.
ZA Bank, a leading online banking firm, has reportedly adopted this initiative with a bank’s chief executive informing that they were eager to explore practical use cases with potential issuers for the diverse application of stablecoins.
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Exploring Opportunities, Managing Risk
In its policy statement from October 2022, the government advocated an initiative for “same activities, same risks, same regulations” aligning with its VA regulation.
Chan emphasized that the VA sector is transforming fast. According to him there are opportunities but also hazards, such as risks to financial stability, money laundering, and risks to the investor.
Hong Kong is reportedly seeking to adhere to global standards, including those outlined by the Financial Stability Board in July 2023
The Financial Services and the Treasury Bureau (FSTB) will continue adjusting its approach to over-the-counter VA trading services, incorporating feedback from public consultations.
A second consultation is slated for next year so as to enhance the stakeholder engagement of the city.
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