Hong Kong Should not Ban but Regulate Crypto Trading, Says SFC Chairman

One of the complicated issues in overseeing the virtual currency market is to determine which parts of it come under the scope of existing laws, the outgoing head of the Securities Commission explained.

Hong Kong has no plans to impose a ban on cryptocurrency trading like mainland China, Carlson Tong Ka-shing, the Chairman of Securities and Futures Commission (SFC) said in an interview to local media on Monday. Tong, who is due to hand over the SFC’s rule to Tim Lui Tim-leung later this week, is in favor of regulating virtual asset exchanges on investor protection grounds.

The Commission is anxious to oversee the crypto market, but the law restricts it, the SFC boss noted. One of the main obstacles for introducing a regulatory regime is that SFC cannot define all players and services in the digital currency industry by using the current Securities and Futures Law, Tong said.

However, SFC is actively working to find ways to resolve that kind of legal gap.

“They [some crypto companies] do not fit in the custodian, audit or valuation requirements, for instance, normally expected under the Securities and Futures Ordinance,” Tong explained.

“We have to carefully consider the regulatory approach  for these platforms because they are new technology and may not qualify as securities.”

According to Tong, crypto trading venues need a licensing regime that is comparable to the traditional stock exchange rules. Once the city enforces those rules, authorities should update them occasionally as the virtual asset market is under permanent development.

“We do not think imposing a total ban on these platforms is necessarily the right approach, and it will not work in today’s internet world when trading can cross national boundaries,” Tong said to South China Morning Post newspaper.

“Even if we were to ban them, transactions can still be easily conducted via platforms in overseas markets.”

Hong Kong-based BitMEX, which is one of the leading crypto trading players, welcomed Tong’s idea for regulation as it keeps pace with market developments.

“The US 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,” Angelina Kwan, chief operating officer, said.

A former British colony, Hong Kong functions like a special administrative region within China and has political and economic autonomy under the handover agreement between Beijing and London. Last year, the city did not follow China’s total ban on cryptocurrency trading and some of the leading players, attracted by its liberal economic policies, have established their headquarters in Hong Kong.