Hong Kong’s financial watchdog is looking to tighten investor protection by regulating cryptocurrency trading platforms. The Securities and Futures Commission (SFC), however, is limited by its legal regulatory reach of securities only, according to Carlson Tong Ka-shing, the outgoing chairman.

Outgoing SFC Chairman Says Ban on Cryptocurrency Trading “Will Not Work in Today’s Internet World”

In his last interview before leaving the SFC, Ka-shing told the  that a ban on cryptocurrency trading “will not work in today’s internet world when trading can cross national boundaries. Even if we were to ban them, transactions can still be easily conducted via platforms in overseas markets.” Taking a completely different stance from Mainland China’s full ban on digital currency trading, the SFC has only issued warnings of caution to investors. However, as the market grows within the retail and institutional trading frames, the regulator faces increased pressure to put in place formal rules while being limited to securities regulation.

“We have to carefully consider the regulatory approach for these platforms because they are new technology and may not qualify as securities. They do not fit in the custodian, audit or valuation requirements, for instance, normally expected under the Securities and Futures Ordinance.”

Tong added that the SFC is evaluating the best approach to regulate cryptocurrency platforms “to a standard that is comparable to that of a licensed trading venue, while at the same time ensuring investors interest are being protected.”

The SCMP reached out to Angelina Kwan, chief operating officer of the bitcoin Mercantile Exchange (BitMEX), and Jeremy Allaire, founder and chief executive at U.S.-based Circle, on the proposed regulations.

“We hope the guidelines or regulations being considered will keep pace with market developments. The U.S. has introduced regulations over cryptocurrency and there are futures products being traded by the CME Group and the CBOT. This shows that a regulatory authority can help to develop a new industry,” Kwan said.

As for Allaire, he is aware that Circle operates in a non-regulated space and vowed to proactively work with the Hong Kong authorities on emerging licensing or regulatory frameworks. Circle’s mCEO wants rules in place to protect the “real risks for investors” and to “ensure the long-term potential of the digital asset industry.” The SFC’s annual report published in June stated the regulator would monitor the cryptocurrency market and step in with penalties when it needs to.

Mainland China, on the other hand, has a much harsher approach to digital currency trading. Alipay recently ended all Bitcoin over-the-counter (OTC) trades on its platform, as part of the ban announced in 2017.

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