The CEO of the Hong Kong Securities and Futures Commission (SFC), Julia Leung Fung-yee, referred to the adoption by Hong Kong from regulating Web3 following the bankruptcy of cryptocurrency exchange FTX last November, noting that cryptocurrency trading is an important part of the virtual asset ecosystem.
During a recent speech, Leung reportedly explained that the new licensing system for virtual asset providers will ensure investor protection taking into account the risks financial institutions face. In the boss’s view, bringing virtual asset providers into the regulatory system was the only way to embrace innovation and bolster market confidence after FTX’s bankruptcy.
Hong Kong took advantage of the FTX collapse to reduce the regulatory risks associated with centralized exchanges. In December, almost 30 days after the exchange crisis broke out, its legislative council included virtual asset service providers in the same legislation that governs traditional financial institutions.
The new rules set out strict anti-money laundering guidelines and investor protection laws for virtual exchanges wishing to open a business in Hong Kong. It also introduces a new licensing system that allows retail investors to trade virtual assets. Until recently, digital asset trading was restricted to professional investors and traders with at least $1 million in bankable assets.
According to Leung, Hong Kong’s cryptocurrency licensing system is a good example of China’s “one country, two systems” policy. Cryptocurrencies have been banned in mainland China since 2021, while Hong Kong took a different approach by promoting a more favorable environment for cryptocurrency-focused companies.
In the past 12 months, more than 150 Web3 companies have established themselves in Hong Kong’s Cyberport, a digital hub set up by the local government to foster innovation. The influx came after the government allocated 50 million yuan ($7 million) to speed up Web3 development.
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