November, 2020
Following the prosecution of BitMEX executives in the United States, Hong Kong announced a licensing and regulatory regime for crypto platforms. The case against BitMEX's CEO and other executives may be the first to apply bank secrecy laws to prosecute non-bank financial institutions, and also the first case targeting a cryptocurrency platform.
Hong Kong has always been one of the major jurisdictions in the cryptocurrency field, hosting some of the largest global exchanges such as Huobi, OKEx, FTX, and BitMEX. From early adoption of cryptocurrencies to the extensive publicity in 2018, Hong Kong adopted a non-interference approach, merely warning about the risks involved with cryptocurrencies. The prevailing stance taken by Hong Kong's financial regulators at the time was that cryptocurrencies are neither currency nor securities. From their perspective, they were classified as virtual commodities. As a free port, Hong Kong imposes minimal restrictions on the import and export of goods and does not levy tariffs. The government stated in 2015 that there was no need to regulate Bitcoin: "Bitcoin[…] in Hong Kong[…] does not pose a significant threat to the financial system, so there is no need to enact legislation to regulate virtual commodity trading or prohibit people from participating in such activities." However, since 2018, some regulatory measures have begun to narrow this space. By the end of 2017, the Hong Kong Securities and Futures Commission (SFC) issued a statement regarding ICOs, clarifying that digital tokens offered or sold in the form of "securities" may be subject to Hong Kong securities laws. This includes tokens with characteristics similar to collective investment schemes and futures contracts. Last year, a voluntary licensing scheme was introduced. This month, the Hong Kong SFC announced that Hong Kong will take action to regulate all cryptocurrency trading platforms operating in Hong Kong. Under anti-money laundering laws, a new licensing system was proposed, requiring all cryptocurrency trading platforms operating in Hong Kong or targeting Hong Kong investors to apply for an SFC license. The new regulations will cover various virtual asset trading platforms, as well as overseas platforms targeting local investors. Crypto platforms were initially allowed to serve only professional investors, prohibiting retail investors from trading on their platforms. This move appears to expand the SFC's regulatory scope both locally and overseas. This may not be the end of Hong Kong's crypto business, but it is certainly no longer a laissez-faire approach.
