All virtual asset exchanges should be licensed if they want to operate in Hong Kong, the Financial Services and the Treasury Bureau (FSTB) said after concluding a consultation that started in November last year.
In addition, it proposed that they should only be allowed to provide services to professional investors, that is individuals with at least HK$8m (£726,060, $1.03m, €844,170) of investible assets.
The announcement came after a roller-coaster week for cryptocurrencies, such as Bitcoin and Ether.
The price of Bitcoin collapsed following a series of tweets last week by Tesla chief executive Elon Musk, who said that the company would not accept the digital currency, just two months after allowing Bitcoin as payment for Tesla’s cars.
Bitcoin’s price has slumped 48% from the year’s high of $64,895.22 (£45,949.38, €53,162.49) on 14 April, according to Coinbase.
ESG concerns
Musk pointed to the massive amounts of energy required to “mine” Bitcoin, which is generated by computers solving complex mathematical problems. Although no actual coins are minted, the technology involved uses huge amounts of electricity, which in turn burns large quantities of fossil fuels.
Meanwhile, China is cracking down on Bitcoin mining and trading as part of ongoing efforts to prevent speculative and financial risks. It recently announced a stricter ban on banks and payment companies offering crypto-related services
In the US too, regulators have acted to constrain cryptocurrencies. The country’s Treasury issued a report on 20 May describing compliance proposals from President Joe Biden, including mandatory tax reporting for transactions of $10,000 or more for Bitcoin and other cryptocurrencies.
There are several cryptocurrency exchanges operating in Hong Kong, which have benefitted from a relatively permissive regime, that means they can voluntarily apply to be licenced by the Securities and Futures Commission (SFC).
Local financial technology and crypto industry associations have opposed regulation stopping exchanges from offering services to retail investors, warning this could drive exchanges out of Hong Kong.
In Singapore, for example, cryptocurrency exchanges must be licenced, but can have retail investors as clients.
The FSTB said it intends to propose legislative changes to turn its proposals into law in the upcoming 2021-22 session of the city’s legislative assembly.
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