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Hong Kong to explore legalizing retail crypto trades

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Hong Kong is taking steps towards legalizing retail trading of crypto assets, in a reversal that contrasts Beijing’s crackdown on such transactions in mainland China.

The Chinese territory’s regulators are also exploring the listing of crypto exchange traded funds, Hong Kong’s financial authorities said on Monday, as the city’s rivalry with Singapore for regional financial hub intensifies.

The Securities and Futures Commission has been “actively looking to set up a regime to authorize ETFs providing exposure to mainstream virtual assets with appropriate investors’ protection guardrails,” said deputy chief executive and executive director Julia Leung.

“At the initial stage, we expect the underlying assets to be confined to bitcoin futures and ether futures traded on the Chicago Mercantile Exchange,” Leung said at the government’s FinTech Week, one of the first major financial events to be held after Hong Kong scrapped hotel quarantine last month.

The SFC will conduct a public consultation on how retail investors may be given a suitable degree of access to digital assets under the new licensing regime, the Hong Kong government said. Rules currently limit crypto trades to institutional investors with a portfolio of at least HK$8mn ($1mn).

Hong Kong’s move comes as Singapore looks at tightening the threshold for retail crypto trading, with new restrictions expected to be rolled out. Last year, Beijing declared all activities related to digital coins illegal.

Speaking at FinTech Week via video after catching coronavirus, Hong Kong’s financial chief Paul Chan said the city was “open and inclusive” with regards to digital assets. The statement comes after Covid curbs have undermined Hong Kong’s status as a financial hub and led to an exodus of residents.

“We want to make our policy stance clear to global markets to demonstrate our determination to explore financial innovation together with the global virtual assets community,” Chan said.

A bill to establish a statutory licensing regime for virtual asset providers is now going through Hong Kong’s rubber-stamp legislature and is expected to come into force in March next year.

Charles Li, former chief executive of Hong Kong Exchanges and Clearing, which runs the city’s stock exchange, said of the policy announcement: “I think it will move the psychological needle quite a bit, and at least allow the conversation [about digital assets in Hong Kong] to take place.”

But he warned that many segments of the industry had “imported all the crap and all the fraud that we have been practicing in traditional finance for over a hundred years. And there’s a new generation of people who are willing to be robbed.”

Others were more sanguine. “Hong Kong has a rich history of retail foreign exchange trading and we have believed for some time that this could one day be replicated with virtual currencies. That day has come,” said Vince Turcotte, director of digital assets at Hong Kong-based Eventus.

“The importance of retail investor participation to [virtual asset service providers] cannot be overstated. Generating sufficient liquidity and order flow from investors and speculators in virtual assets, particularly in cryptocurrencies, is essential to market making and VASP business models,” Turcotte added.

Additional reporting by William Langley in Hong Kong