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On January 11, the head of Hong Kong’s Securities and Futures Commission (SFC) suggested that Hong Kong may allow retail traders access to a limited number of cryptoassets for trading.
SFC Chief Executive Julia Leung Fung-yee told the conference that the SFC will publish an updated consultation document on Hong Kong’s planned crypto regulatory framework, which is expected to outline what retail users of crypto products in Hong Kong can and cannot ‘t , trade. Leung suggested that under the new regime, retail investors will be limited to trading in highly liquid, “core” cryptoassets.
This statement marks an important development for Hong Kong, and potentially a very positive one for the crypto industry there. Hong Kong policymakers and regulators have suggested for nearly the past three years that retail investors are likely to be completely barred from cryptocurrency-related products and services — a move allegedly designed to protect retail traders from highly volatile crypto markets. Those comments led observers to conclude that Hong Kong may be closing itself to cryptocurrencies.
More recently, however, the SFC has indicated that it has reconsidered its initial approach and that changing market dynamics have led it to conclude that limited trading between investors should be allowed, with strict regulatory controls to ensure consumer protection. Late last year, the SFC suggested it wanted to give retail traders access to future Bitcoin products, rather than allowing them to trade cryptocurrencies directly on Hong Kong exchanges.
But Leung’s recent remarks suggest that the final proposal in the consultation may go a bit further than expected, potentially allowing retail traders the ability to directly trade a small number of assets.
While it is unclear exactly what may be allowed, reports suggest that retailers would be allowed to access assets on the token whitelist. Other jurisdictions – such as Japan and the state of New York – have a token listing framework that limits the cryptocurrencies that exchanges can offer.
Since 2018, the SFC has administered the licensing framework for cryptocurrencies, but from June 2023, Hong Kong will implement a mandatory licensing framework for all exchanges. The news that retail investors may be allowed access to crypto trading platforms is certainly a sign that Hong Kong sees the potential in the crypto industry and the role it can play there. However, even with limited retail trading, crypto exchanges are expected to meet high standards of compliance with anti-money laundering requirements as well as consumer protection measures.
At Elliptic, we have worked closely with some of Hong Kong’s largest exchanges since 2018 to enable them to respond to local anti-money laundering requirements. Contact us to learn more about how we can help meet these requirements, and in the meantime, watch Elliptic’s previous webinar on crypto regulation in Hong Kong.
The SEC charges Gemini through the earnings program
In the US, the Securities and Exchange Commission (SEC) has sent a message that 2023 will be a year full of enforcement action, targeting its first enforcement case of the year at two of the biggest players in the US crypto industry.
On January 12, the SEC charged Genesis and Gemini for their offering of a crypto interest-bearing product called Gemini Earn to retail investors. Under the program, Gemini clients loaned funds to Genesis, earning significant interest for lending their funds. The SEC alleges that the Earn product constituted an unregistered offering of securities.
While Gemini and Genesis argue that the product functions similarly to a savings account, the SEC contends that the product was an investment contract, in part because the companies promoted it as a way for users to earn significant returns, as high as 8.05%, and in part because of the significant risks with which investors would face losses. In November 2022, Genesis announced the shutdown of the program amid market turmoil over the collapse of FTX – resulting in many Earn users being unable to withdraw their funds.
Tyler Winklevoss – one of the founders of Gemini – described the enforcement case, which is on its way to a court ruling, as “disappointing”.
The case follows an earlier controversial spat between the SEC and Coinbase, which saw Coinbase pull a similar product from the market. The latest move also reflects the continued aggressive stance of US regulators, who – as Elliptic’s previous research has shown – have imposed fines totaling more than $3.3 billion on crypto companies.
Nexo under investigation in Bulgaria
In other law enforcement news, crypto exchange Nexo is reportedly under investigation in Bulgaria over allegations of fraud and money laundering. Reports indicate that on January 12, prosecutors in the country ordered a search of Nexo’s offices there, in connection with a money laundering scheme and possible evasion of sanctions against Russia.
Nexo subsequently took to Twitter, stating that it was cooperating, but claiming that the police who visited their office did not have a search warrant, and that they believed the search was a politically motivated move in light of the recent turbulence in the crypto markets. In December, Nexo announced it would exit the US market, following news that the exchange was under civil investigation by the US Consumer Financial Protection Bureau (CFPB).
France wants to speed up fully mandatory cryptocurrency licensing
In France, policymakers are eager to speed up the development of a domestic crypto regulatory framework following the collapse of FTX. To date, France – like Hong Kong – has led the registration framework for crypto companies seeking full authorization to conduct most financial services activities.
The country’s regulatory body has approved approximately 60 crypto-businesses for local operations, although most of these firms, including Binance, are only authorized to perform limited services within France and must comply with AML laws.
Since the collapse of FTX, the French government has been rethinking this approach, with policymakers urging the country to accelerate the transition to a fully mandatory regulatory regime. Francois Villeroy de Galhau – the governor of the Banque de France, the country’s central bank – said recently that France needs to speed up its mandatory licensing regime and should now start work on establishing a regulatory framework that will allow France to implement the EU Regulation on Crypto Asset Markets ( MiCA).
The UK government is taking a bullish position on stablecoins
As of October 2022, cryptocurrency watchers have been wondering whether Prime Minister Rishi Sunak will follow through on the promise he made as Chancellor of the Exchequer to turn the UK into a crypto hub. This week, a senior figure in the Sunak government sent a strong message that the UK is truly committed to enabling crypto innovation.
Treasury Secretary Andrew Griffith told MPs on January 10 that he wants to see the UK develop a regulatory regime to support the development of stablecoins.
Parliament is currently debating amendments to the Bill on Financial Services and Markets. Among other things, this would bring stablecoin issuers within the scope of the UK’s electronic money regime, ensuring that stablecoins are subject to consumer protection requirements and that issuers safeguard client funds – measures that the crypto industry has generally supported as it lobbies for a clearer and more comprehensive regulatory framework. Griffith told the Parliamentary Treasury Committee that he would support a privately issued stablecoin that could one day enable faster wholesale settlement among British financial institutions.
Thai regulators seek to encourage crypto education among investors
Thailand’s Securities and Exchange (SEC) is taking steps to improve investors’ understanding of cryptocurrencies in a move designed to strengthen consumer protection. The SEC has launched the Crypto Academy – a series of four online courses available on its website.
The courses provide investors with information ranging from the basics of Bitcoin and blockchain to information on non-fungible tokens (NFTs) and other innovations. The SEC hopes that by providing more education to the public, consumers will avoid making high-risk investments without first being sufficiently aware of the potential losses they may face.
Financial services, law enforcement regulations
