Author: Yuxin Chen
Source: Zinc Link
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Editor's Note: The original title is "Hong Kong's new regulations to promote STO development, "Goldmans" or the biggest winner"
On November 6, the Hong Kong Securities and Futures Commission issued the "Warnings on Virtual Assets Futures Contracts" and "Standards: Regulating Virtual Asset Trading Platforms".
Before the release of the rules, Ashley Alder, chief executive of the Hong Kong Securities Regulatory Commission, revealed that the framework would enable the virtual asset trading platform to be regulated by the Securities and Futures Commission.
The rules show that the Hong Kong Securities Regulatory Commission will issue licenses to digital asset exchanges; the new regulations will cover the regulation of anti-money laundering, market manipulation and fair trade. The specific regulations are extremely detailed, requiring license applicants to be “appropriate candidates”; services can only be provided to professional investors with relevant knowledge; futures contracts are not allowed; assets in wallets must be fully insured; 98% of user assets must be Stored in a cold wallet; a joint venture third party must issue a report.
In the past year, Hong Kong has been active in the field of digital assets, from the issuance of relevant regulatory sandbox plans a year ago, to the introduction of regulatory rules.
For an international financial city that has been described as "suffocating", after missing the Internet dividend, it is particularly important to seize the wave of financial technology. Financial innovation, Hong Kong is imperative.
First, "Bitcoin does not belong to me" only regulates trading securities-based token platform
Ashley Alder said that non-securities transactions do not apply to the new regulations and emphasize that "bitcoin is not a security."
The Hong Kong regulation is mainly aimed at the STO (Security Token Offer), which is the “securitisation pass issue”. The goal is to issue a public certificate of the pass under a legal and regulatory regulatory framework.
Qian Yinggang, a partner of Jingheng Law Firm, told Zinc Link that the STO model is mainly divided into two levels: securitization of equity assets and issuance of certificates. Compliance can also be understood from two aspects, a domestic STO. The other is for overseas operations, there is room for legalization. Through the overseas structure, the issuing country can conduct Financing financing according to the country's (local) regulatory system.
Second, the new rules or clear the way for the traditional financial masters
Regulatory has set a threshold, and people in the door have more first-mover advantages, such as big brokerage investment banks who are familiar with financial rules.
The regulatory standards for virtual asset trading platforms issued by the Hong Kong Securities Regulatory Commission are similar to those of traditional licensed securities brokers and automated trading venues, and continue the rigorous Hong Kong style.
The standards cover the safekeeping of assets, awareness of your customers (KYC), anti-money laundering and terrorist fundraising, market manipulation, accounting and auditing, risk management, etc.
Clara Chiu, Director of the Licensing Division of the Hong Kong Securities Regulatory Commission, stressed that even if 99% of the platform business is Bitcoin and Ethereum, as long as there is a token that belongs to securities, it is eligible for licensing under the supervision of the CSRC.
However, is the license really so good?
Primy Ventures founder Dovey Wan is excited on Twitter and believes that the new rules will be very direct for exchanges with a large number of Chinese users such as Firecoin, which is expected to help them become the first legalized Chinese cryptocurrency exchange.
Immediately, the CEO of Bitspark retorted that “there is no Bitcoin trading platform to join. These regulations are for institutional investors. Many people in the Hong Kong cryptocurrency community think this is a joke.”
The requirements of the rules for investors are indeed strict.
The SFC stipulates that platform operators can only provide their services to professional investors and ensure that their customers fully understand virtual assets.
First of all, the definition of a professional investor is that the account has 8 million Hong Kong dollars of current assets (real estate and other real estate are not included in the user). Secondly, “fully understanding virtual assets” is a relatively difficult standard to refine. In terms of the cost of education users, exchanges will also be weighed.
Compliance costs are not limited to this.
According to the regulations, any changes to the trading platform business must be reported to the CSRC, and a monthly report will be issued. In each fiscal year, a third party with the qualification of the SFC will be required to issue a report.
In addition, as the corresponding specifications of the blockchain trading platform have not yet been established, the Hong Kong Securities Regulatory Commission will require the platform operators to ensure that the insurance coverage is effective, and that the hot wallet assets are fully guaranteed, and the cold wallet is 95% guaranteed.
Hong Kong's virtual asset insurance development is very early, and STO insurance on the market is extremely rare, so some people complain that they want to buy insurance that does not exist.
In terms of operational rules, the standards of the SFC are even “fine to two decimal places”.
The rules require platform operators to ensure that they store 98% of their virtual assets in cold wallets, with hot wallet storage assets not exceeding 2%. Moreover, platform operators and their associated entities should try to avoid allocating assets from offline wallets that hold most of their virtual assets.
In addition to the high cost of compliance, digital currency exchanges are not actually “just needed”. Therefore, the strongest reaction to the rules is probably not the “traditional currency player”.
“Regulators essentially want applicants to be traditional fund managers,” said Gaven Cheong, a partner at Simmons & Simmons, in an interview with Reuters.
Henri Arslanian, head of global cryptocurrency projects at PricewaterhouseCoopers in Hong Kong, said: At present, small funds and encryption-only funds have shown great interest.
“Goldman Sachs, Morgan Stanley and other traditional financial giants will be more involved.” Tidebit Exchange’s head, Zeng Junjie, told Zinc Link that they have more first-mover advantages than the digital currency exchanges such as Firecoin and OKEX. .
The No. 1 (Securities Trading) and No. 7 (Automated Trading Platform) issued by the Hong Kong Securities Regulatory Commission are the most concerned. Hong Kong’s big investment banks and brokerages have long had the No. 1 license. It is not difficult to obtain the No. 7 card. They handed in the tickets to the sandbox early.
Nowadays, the regulatory rules are clear and the policy risks are drastically reduced. Of course, these institutions will not miss the opportunity.
However, some industry insiders believe that strict regulations will cause more institutions to withdraw their centers from Hong Kong to evade supervision.
It is reported that there are dozens of virtual asset trading platforms in Hong Kong, including some of the world's larger platforms, which have offices in Hong Kong.
The SFC itself also predicted that some platforms may not apply for a license from the Securities and Futures Commission under the new regulatory framework.
Although the regulations are more favorable to traditional brokers, in the foreseeable future, a large number of Tokenfund, asset management, quantitative teams, and factoring platforms will still flood into Hong Kong. After all, this is a capital market experiment that no one wants to miss.
Third, warning: futures contracts are considered illegal operations
It is worth mentioning that the Hong Kong Securities and Futures Commission has also given a clear warning to futures contracts: the platform for selling or trading virtual asset futures contracts may be illegal in Hong Kong.
Virtual assets are inherently volatile, and the highly leveraged nature of futures contracts doubles investor risk. In addition, the complexity and inherent risks of these products may be difficult for general investors to understand.
In addition, the platform for selling or trading virtual asset futures contracts involves manipulating markets and violating activities. Trading rules for virtual asset trading platforms may not be clear and fair, and some platforms may change trading rules, such as suspending trading or canceling transactions, resulting in significant losses to investors.
The SFC has indicated that in Hong Kong, any trading platform or person who sells virtual asset futures contracts or provides trading services for virtual asset futures contracts without proper licensing or approval may violate the Securities and Futures Ordinance ( Chapter 571) or the Gambling Ordinance (Chapter 148).
They said that so far, no one has been licensed by the SFC or approved to sell or trade virtual asset futures contracts in Hong Kong. In the future, it is unlikely that a license or recognition will be granted for the business of the relevant contract.
In this way, if the exchange wants to be in compliance with Hong Kong, it will have to start divesting the platform contract service in Hong Kong.
Xu Kun, chief strategy officer of OKEx, said on Weibo that the dividend of financial innovation will ultimately belong to enterprises that dare to actively embrace supervision, and belong to enterprises that can give up short-term interests and continue to self-compliance.
The rules of the game have been introduced, and many large financial institutions are eager to enter the "happy field."
Digital currency exchanges that do not involve STO are not affected in the short term, but in the long run, embracing supervision can stand out from the crowd, and the opportunities and costs are always measured.
As a result, the rules will attract more influees, and others will withdraw and move the business and center overseas. The introduction of new regulations on virtual asset supervision in Hong Kong will usher in a wave of industry reshuffle.