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Hong Kong To Reconfigure Licencing Regime For Crypto Assets

The SFC statement also set out details of a conceptual framework to explore the voluntary regulation of virtual asset trading platform operators, which was followed by the publication on 6 November 2019 of a position paper setting out a new regulatory framework for virtual asset trading platforms. Set to launch in H1 2009, AAX will offer retail and institutional users the opportunity to trade spot and futures markets for cryptocurrencies, and in the future, a range of tokenised assets including, securities tokens, asset backed tokens and stable coins. Cryptocurrenies and virtual assets listed on an SFC-licensed platform will not be subject to the same kind of regulation applied to traditional offerings of securities or investment funds.

hong kong cryptocurrency exchange

On 20 April 2020, Arrano Capital, the blockchain arm of VSAL, announced the launch of the first cryptocurrency fund in Hong Kong to have an advisor and distributor – i.e. The fund comprises Ethereum cryptocurrency Digitrackers SPC and its first Segregated Portfolio, Digitrackers Bitcoin SP, a Cayman Islands exempted limited segregated portfolio company and segregated portfolio respectively.

Have There Been Any Governmental Or Regulatory Enforcement Actions Concerning Blockchain In Your Jurisdiction?

It aims to assess the need for a bespoke crypto regime and/or amendments to existing financial regulation. In January 2020, the Reserve Bank of India underlined it did not ban cryptocurrencies such as bitcoin, but only ring-fenced regulated entities like banks from risks associated with crypto-assets trading. The Commodities & Futures Trading Commission released a digital assets primer in December 2020.

However, frequent trading of crypto assets in the “normal course of business” is treated as income and thus applicable for income tax in Hong Kong (17% cap) if an individual and profits/income taxes in the cases of legal business entities. Mr Delo, Arthur Hayes and Samuel Reed, who jointly founded the cryptocurrency derivatives trading platform in 2014, were required to register with the Commodity Futures Trading Commission and establish an anti money laundering programme but “chose to flout those hong kong cryptocurrency exchange requirements”, US prosecutors allege. Another advantage of Gemini is that it’s a New York state limited liability trust company, and is regulated by New York’s Department of Financial Services. Close proximity to the Wall Street financial markets allows the company to easily provide a bridge from more traditional investments to newer cryptocurrency markets, for both individual and institutional investors. This is a US-based exchange which was founded in 2012, and it supports over 32 countries.

hong kong cryptocurrency exchange

According to a March 2019 report by CryptoCompare, a global digital currency data provider, Hong Kong ranked second globally for monthly cryptocurrency trading by volume in March 2019, based on legal jurisdiction of exchange, with US$53.1 billion worth of cryptocurrencies traded. On 28 March 2019, the SFC published a statement on STOs, again reminding investors to be wary of the risks associated with virtual assets, but this time focusing on tokens which are the subject of STOs (“Security Tokens”).

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Bitcoin exchanges also allow people to store cryptocurrency, although if security is a priority, you’ll want to store your virtual wealth in a leading Bitcoin wallet, over which you have more control. While many platforms only offer crypto-to-crypto trading, some providers allow you to exchange Bitcoin with fiat currency such as GBP, including Coinbase, Kraken, or Bitfinex. Dozens of cryptocurrency exchanges operate in Hong Kong, including some of the world’s largest, though many chose not to apply for a licence under the existing regime.

hong kong cryptocurrency exchange

Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed. The new licensing approach requires all platforms that trade any types of crypto assets, including both operating in Hong Kong and targeting Hong Kong investors, to apply an SFC license. must implement and enforce robust rules for the listing and trading of virtual assets on its platform. VA Exchanges should also perform all reasonable due diligence on virtual assets before listing them for trading. As described in the response to question 10 above, the SFC’s statement published on 9 February 2018 noted that the SFC had sent letters to seven cryptocurrency exchanges in Hong Kong or with connections to Hong Kong warning them that they should not trade cryptocurrencies which are “securities” as defined in the SFO without a licence.

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Our experience in this sector means we understand the many challenges and opportunities that financial institutions, businesses, investors and start-ups face. Japan adopts the Virtual Currencies Act on April 1st 2017, and requires licenses for all crypto trading platforms to exercise any activity related to cryptocurrency. Service providers crypto exchanger of crypto activities must register with the Institution of Agents and Mediators. In March 2019, the Italian financial markets supervisory authority published a call for evidence on initial coin offerings and crypto-assets. In December 2019, the EU launched a public consultation on the regulatory treatment of crypto-assets.

In July 2019, the Financial Conduct Authority published its final “Guidance on Cryptoassets”, with the aim of clarifying to market operators what the applicable regulatory requirements for their crypto assets activities are. Japan amends its crypto asset regulation with a focus on derivative transactions generally enforceable from May 1, 2020. Crypto-assets qualifying as securities will also be subject to new requirements while crypto custody will be subject to licensing. Crypto trading activities will also have to fulfil new rules regarding unfair trading and practices. Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors.

A Guide To Blockchain And Cryptocurrency Regulation 2020 (gli Chapters)

There may, however, be other ways to characterise the smart contract and its relationships with the relevant stakeholders, which could give rise to legal recourse. This might be founded on a legal binding contract, such as securities trading on exchange or DAO, or some other grounds, such as negligence, restitution and fiduciary duty. The remedy of unjust enrichment – often associated with mistakes of fact or law, total failure of consideration, duress and undue influence – might be available in the case of the restitution of unjust gains resulting from a breach of a smart contract. The bottom line, however, is that given the underlying risks of modelling errors and complex contract interdependencies, the performance of each smart contract carries the risk of failing to reflect the intentions of its creators. The Law Society therefore recommends that smart contracts should be adopted only if their design follows the latest best practices and international standards, such as the “escape hatches” referred to above. Where tokens and virtual assets do constitute property under Hong Kong law, then it should be possible to transfer legal title to, and to grant security over, such assets in the same way as other intangible property.

  • On 9 February 2018, the SFC released a statement again alerting investors to the potential risks of dealing with cryptocurrency exchanges and investing in ICOs.
  • Similarly, whilst the SFC has developed a new regulatory approach for virtual assets , it has also expressed caution in a number of circulars and statements warning investors about the risks of investing in cryptocurrencies and other virtual assets and of participating in ICOs and STOs (see the responses to questions 9-15 below for further detail).
  • The statement disclosed that the SFC had sent letters to seven cryptocurrency exchanges in Hong Kong or with connections to Hong Kong warning them that they should not trade cryptocurrencies which are “securities” as defined in the SFO without a licence.
  • Taken together, they set out a new regulatory approach for virtual assets, through the regulation of the management and distribution of virtual asset funds, such that investors’ interests are protected at either the fund management level or distribution level or both.
  • The key substantive guidance published by the SFC in this area came in the form of a statement and a circular issued on 1 November 2018.
  • The measures do not amend the law or the definitions of “securities” or “futures contracts”, but instead clarify existing requirements and impose new requirements primarily in the form of licensing conditions on intermediaries.

The Primer defines the terms “virtual currency”, and “digital token”, and provides an overview of the marketplace and regulatory considerations under the CFTC. The primer also summarizes CFTC jurisdiction over digital assets as well as market oversight controls. The Securities & Exchange Commission issued a statement in December 2020 and requested comment regarding the custody of digital asset securities by broker-dealers. The Statement describes the minimum controls that broker-dealers must implement to comply with the Customer Protection Rule when acting as custodians of digital asset securities. The guiding principle is to mitigate the risk of loss of digital asset securities and the impact such an event would have on broker-dealers, their customers and counterparties, and other market participants. In 2021, the way to digital assets does not look an easy road from a regulatory perspective. Many initiatives are blooming worldwide leading to different local perspectives and interpretations.

The Annex to the Second DLT Whitepaper drafted by the Technology Committee of The Law Society of Hong Kong provides further elaboration on the concepts described above. Its starting point is that whilst smart contracts may have the effect of a contract, they take on many forms and should not be understood simply as contractual documents in digital form. Whilst a smart contract usually contains the mechanics for execution, performance and enforcement, cryptocurrency news it may not contain the entirety of terms forming the contract at law. The relevant question is therefore what sort of legal remedies are sought and under what claims. If a party desires to seek contractual remedies and enforce the smart contract as a contract at law, then the common law contract requirements would need to be proven to have existed contemporaneously during the purported contractual relationship between the relevant parties.

Bitcoin Futures Contracts And Related Products

Coinbase exchanges Bitcoin and the alternative cryptocurrencies of Bitcoin Cash, Ethereum and Litecoin, and it’s the largest of the exchanges, claiming $150 billion (£112 billion) in currency exchanged. In 2014 Coinbase created GDAX, the Global Digital Asset Exchange which was developed for professionals with high volumes of trading. Since June 29th, GDAX is now Coinbase Pro with some improvements, and visiting GDAX site will redirect you to Coinbase Pro.

The FSTB Report states that of the new blockchain firms brought in to Hong Kong by Invest HK in 2019, 27% were trading platforms for digital assets, 14% were involved in custody of digital assets and 5% in security tokens. The LSE joins other traditional exchange-based technology groups, such as Nasdaq and Cinnober, in the provision of services to an emerging crop of crypto exchanges who are keen to embed institutional performance and best practice into the digital asset marketplace. These events follow the announcement made earlier this month by the US Commodities and Futures Trading Commission that Bitcoin futures products and Bitcoin binary options will be launched by three regulated exchanges in the United States.

All licensed platforms are to have insurance covering the risk of virtual assets being lost or stolen. The SFC is bringing in a new regulatory regime around cryptocurrency exchanges and their offerings to retail traders. If the proposed regulatory regime is made law, retail investors will no longer be allowed to buy Bitcoin in Hong Kong from cryptocurrency exchanges and other points of sale of the “virtual commodity”, such as Bitcoin ATMs. The SFC’s actions followed complaints to the SFC from investors alleging, among other things, inability to withdraw cryptocurrencies from their accounts with cryptocurrency exchanges, technical breakdowns of the exchanges’ platforms, manipulation and unlicensed or fraudulent hong kong cryptocurrency exchange activities conducted by ICO issuers. We advise on the regulation of token sales and other digital asset–related transactions, the regulation of fintech businesses, company incorporations , shareholder agreements, mining and pool agreements, joint venture agreements, money exchange regulation, fintech, blockchain and cryptocurrency–related taxation and disputes. On 16 December 2020, the SFC announced that it has granted the first licence to a virtual asset trading platform in Hong Kong. The platform will only serve professional investors under the close supervision of the SFC and will be subject to tailor-made requirements similar to those which apply to securities brokers and automated trading venues.

While Changelly focuses on exchanges between different cryptocurrencies, users can also purchase cryptocurrency with US Dollars or Euros. These efforts reflect a growing concern in Hong Kong at the highest level about the market in cryptocurrencies and ICOs. Whether this will result in a revision or extension of the law and regulations to cater for the particular characteristics and risks arising from dealing in cryptocurrencies is yet unknown. While acknowledging that it may not have jurisdiction over cryptocurrency exchanges and ICO issuers absent any nexus with Hong Kong or trading services which constitute “securities” or “futures contracts”, the SFC emphasised that it would be open to referring cases to the Hong Kong Police for investigation if there is any suspicion of fraud.