Allowing retail investors to trade virtual assets, what is the point of Hong Kong's new policy coming into effect on June 1?

Source: The Paper

Reporter: Wu Tianyi Intern: Hu Xiner

Image source: Generated by Unbounded AI tool

"Providing clear regulatory expectations can promote responsible development. Hong Kong's comprehensive virtual asset regulatory To promote the sustainable development of the industry and support innovation."

·The "Summary" pointed out that platform operators should establish and implement strict internal monitoring measures and governance procedures in terms of private key management to ensure the safe generation, storage and backup of all encrypted seeds and private keys.

On May 23, the Hong Kong Securities Regulatory Commission issued the "Consultation Summary on Proposed Regulatory Regulations Applicable to Operators of Virtual Asset Trading Platforms Licensed by the Securities and Futures Commission" (hereinafter referred to as the "Summary"). According to the Summary, retail investors will be allowed to trade virtual assets on licensed platforms from June 1.

The SFC said it will implement a series of appropriate measures to protect retail investors, “including ensuring suitability, good governance, enhanced token due diligence, inclusion criteria and disclosure in the process of establishing business relationships with clients.”

Bi Lianghuan, chief researcher of Okey Cloud Chain Research Institute, told Peng Mei Technology (that the "Summary" reflects the Hong Kong Securities Regulatory Commission's open attitude towards virtual assets and transparent regulatory thinking, and sufficient risk disclosure is the first step for the Hong Kong Securities Regulatory Commission to emphasize risk management. , This move also marks that in the current macro environment full of uncertainties, the Hong Kong Securities Regulatory Commission is "risk-based" and helps promote financial technology innovation.

The trading platform should comply with a series of investor protection measures

According to the "Summary", starting from June 1, the Hong Kong Securities Regulatory Commission will start accepting applications from retail investors to trade virtual assets on licensed platforms.

In terms of retail investors, Wu Wenqian, a practicing lawyer of the High Court of the Hong Kong Special Administrative Region, a compliance partner of TKX Capital, and a partner of Mulana Capital, told The Paper that the trading pairs for retail investors must be qualified large-cap virtual assets, including at least two Among the acceptable indices published by independent index providers. It is also mentioned in the "Summary" that "licensed virtual asset trading platforms should comply with a series of proper investment rules covering establishing business relationships with customers, governance, disclosure, and token due diligence and inclusion before providing trading services to retail investors. or safeguards.”

Ms. Leung Fung Yee, Chief Executive Officer of the Hong Kong Securities Regulatory Commission, said that the Hong Kong Securities Regulatory Commission will protect the rights and interests of investors, "providing clear regulatory expectations can promote responsible development. Hong Kong's comprehensive virtual asset regulatory framework follows the 'same business, same risk, same rules' ' principles, aiming to provide appropriate investor protection and manage key risks, thereby promoting sustainable development of the industry and supporting innovation."

The "Summary" pointed out that retail investors must understand the risks involved in virtual asset investment and be prepared to accept losses. The Hong Kong Securities Regulatory Commission's approval of a licensed virtual asset trading platform to include a virtual asset for retail trading is not a recommendation or endorsement The virtual asset is also not a guarantee of the commercial viability or performance of the virtual asset.

The Hong Kong Securities Regulatory Commission also issued the "Guidelines Applicable to Operators of Virtual Asset Trading Platforms" on May 23, which will take effect on June 1. The guidelines establish a number of standards and regulations, including safe custody of assets, segregation of customer assets, avoidance of conflicts of interest, and network security, aiming to protect the legitimate rights and interests of retail investors trading virtual assets on licensed trading platforms.

**How to ensure safety? **

The "Summary" emphasizes the risk supervision of virtual asset transactions. Relevant financial institutions should screen wallet addresses involved in virtual asset transactions, and conduct screening and related transactions based on risk sensitivity throughout the entire process from the source to the target remitter, so as to more timely and accurately identify the source and purpose of virtual assets land. Bi Lianghuan also put forward some opinions and solutions in the interview, "Considering that most large-value transfer transactions are not actually carried out on the centralized trading platform, but are completed in the wallet on the chain, transfers and transactions on the chain often have Anonymity and censorship resistance, which can make regulation difficult.”

In addition, the Hong Kong Securities Regulatory Commission attaches great importance to the safekeeping of virtual assets. The "Summary" points out that platform operators should establish and implement strict internal control measures and governance procedures in terms of private key management to ensure the secure generation, storage and backup of all encrypted seeds and private keys. All seeds and private keys need to be securely stored in Hong Kong with proper authentication, such as a hardware security module, Ng said.

The "Summary" mentioned that "platform operators can use multi-factor authentication to confirm that authorized persons have access to applications that manage the use of private keys." Bi Lianghuan said that decentralized storage of seed keys, multiple confirmations, and passive security The direction of technical service solutions in parallel with active and passive security services can help build an on-chain firewall, such as situational awareness.

Regarding the wallet and compensation arrangement, Wu Wenqian pointed out that at least 98% of the customer's virtual currency needs to be stored in the cold wallet, and 50% should be covered by insurance or compensation. Up to 2% of customers' virtual assets need to be stored in hot wallets or other warehouses, and the insurance or compensation coverage is 100%.

According to Bi Lianghuan's analysis, the "Summary" emphasizes technological solutions to security issues, and specifically exemplifies blockchain analysis tools and actively absorbs suggestions from all parties on various risks, such as cross-regional issues of related party transactions, on-chain and off-chain issues, It can be seen that "giving virtual assets to operators who understand better and using technological means to solve technological problems is the appropriate path chosen by the Hong Kong Securities Regulatory Commission."

The Hong Kong Securities Regulatory Commission's emphasis on risk management also reflects its definition of virtual assets, "This is because virtual assets may or may not be regarded as 'assets' according to the law." Bi Lianghuan analyzed, "Virtual assets have legal uncertainties. sex."

"The best foothold to become a virtual asset enterprise"

Some people in the industry said that June 1 may be the opening day of the Hong Kong International Virtual Asset Center plan.

Bi Lianghuan said that the Hong Kong Securities Regulatory Commission dares to use fintech innovation as the edge, adopts a comprehensive regulatory framework and prudent risk management attitude, and joins hands with fintech and compliance technology companies in Hong Kong to open up the road of technology.

The Financial Secretary of the Hong Kong Special Administrative Region Government, Chen Maobo, said in his essay on April 9 that the digital economy and Web 3.0 proposed in the "Budget" announced in February this year have great potential to promote the high-quality development of Hong Kong. , and has aroused positive responses from the society.

Chen Maobo pointed out that in order to make Web 3.0 take the road of innovation and development steadily, Hong Kong will adopt a strategy of "proper supervision" and "promotion of development". Guided by the principle of "same activities, same risks, and same supervision", Hong Kong will first introduce a licensing system for virtual asset service providers in June this year, and at the same time increase the supervision of stablecoins to ensure the sustainable development of the virtual asset industry .

The Chief Executive of the Hong Kong Special Administrative Region, Li Jiachao, also emphasized at the inauguration ceremony of the Web 3.0 Association on April 11 that in order to make Hong Kong the best foothold for virtual asset companies, the government must provide appropriate supervision for relevant markets and release relevant potential. "Hong Kong provides a certain degree of market recognition for virtual asset exchanges to ensure the steady and orderly development of the market and protect the interests of investors."

It is worth noting that although the relevant system will come into effect on June 1, the Hong Kong Securities Regulatory Commission has not yet approved any virtual asset trading platform to provide services to retail investors, and most of the existing virtual asset trading platforms accessible to the public are not Regulated by the Hong Kong Securities Regulatory Commission.