Hong Kong’s Proposed Legislation To Restrict Crypto Trading To Qualified Investors

Hong Kong’s cryptocurrency regulation shouldn’t come as a surprise, especially if you have been following them closely. Hong Kong’s Securities and Future Commission (SFC) introduces a new licensing system to regulate crypto exchanges. The CEO of SFC, Ashley Alder, hinted bout implementing a new cryptocurrency regulatory framework. 

The new regulatory framework will mandate all crypto trading platforms operating in Hong Kong to apply for an SFC license. This proposed Hing Kong cryptocurrency regulation will also affect crypto exchanges targeting local investors. According to Alder, “the government will propose a new licensing regime under the Anti-Money Laundering Ordinance. It will overall platforms that trade any crypto-asset even if not classified as a security.”

In November 2019, Hong Kong’s SFC introduced an opt-in regulatory framework for crypto exchanges. However, the regulation only affects exchanges that offer at least one crypto that falls under securities’ legal definition. The SFC chief noted that the current regulatory system is limited, thus making it possible for some crypto exchanges to operate outside the purview of a regulator. 

Alder explained that crypto trading platforms that wish to remain off the regulator’s radar only need to avoid crypto assets that are legally termed securities. Currently, most of the crypto exchanges operating in Hong Kong chose not to apply for a license. Such an action is possible under the already existing regulatory framework in Hong Kong. 

Once this proposed Hong Kong cryptocurrency regulation is in place, all digital asset trading platforms would be regulated. It means that these crypto exchanges will be monitored and supervised henceforth.

How will Hong Kong Cryptocurrency regulation drive crypto business?

The new cryptocurrency regulation in Hong Kong is good news to crypto businesses that are catering to institutions. There is no doubt that the SFC is positioning Hong Kong to be the hub of institutional crypto investors. This will be a welcome development to traditional banks like DBS and Standard Chartered that are preparing to provide custody and trading in crypto. 

Meanwhile, many crypto trading operators in Hong Kong will face a start choice due to the proposed regulation. These retail-focused firms will have the option of changing their business model or lobby the SFC for special permissions. Some industry analysts argue that Hong Kong employees are members of a distributed management team, and they do not cater to local investors. Retail-focused firms can also opt to sell to licensed operators. 

The painful truth is that some of these retail-focused crypto firms in Hong Kong will have to exit the market. This begs the question: if it is not Hong Kong, then where?

How will it affect Retail Investors?

The SFC is fixated on keeping retail investors out of the space. This is one reason why retail-focused crypto firms will sit out of the proposed crypto regulation in Hong Kong. There is no point getting a license if your core market will be barred from patronizing your business. 


The Hong Kong cryptocurrency regulation is proof that governments worldwide are trying to control the cryptocurrency market. With the current trend, there is a big chance that the cryptocurrency market will be regulated just like the traditional banking industry.