Hong Kong is preparing to introduce new regulations for virtual asset regulation. The Securities and Futures Commission (SFC) has released its conclusions from weeks of consultation on regulatory guidelines for cryptocurrency platforms. The new guidelines will come into force on June 1, and Hong Kong crypto exchanges will have to seek licenses under the Securities and Futures Ordinance (SFO) and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). As of now, Hong Kong does not have any licensed crypto platform for retail investors.
Regulations for Crypto Platforms in Hong Kong
Under the new guidelines, crypto platforms will have to meet various requirements. Crypto platforms must employ at least two “responsible officers” (RO) for each type of license it holds. So a crypto platform licensed under SFO and AMLO would need to hire four ROs. Responsible officers are part of the top management and need to be licensed by the SFC and approved as a RO of an exchange. ROs also need extensive experience in order to become licensed.
The Challenges of Employing Responsible Officers
There is a limited number of ROs in Hong Kong, and the hiring process for new ones can take up to five months. Many executives lack blockchain and cryptocurrency expertise, which makes it difficult for crypto exchanges to fill these positions. According to Lily King, COO of Cobo, a digital-asset custodian applying for a Hong Kong license, ROs have become the “hardest position to fill in Hong Kong.” As a result, the SFC has revised the requirements so that crypto exchanges that are dually licensed need to employ only two ROs instead of the previously required four.
The Importance of Responsible Officers in Crypto Exchanges
ROs are responsible for ensuring that their firms comply with all the rules and regulatory requirements. If their firms fail to comply, ROs can be subject to civil and criminal penalties. As a result, crypto exchanges are trying to work with ROs in traditional finance. However, such individuals are generally reluctant to change their career tracks to crypto, which is viewed as riskier. The limited number of ROs that have blockchain and crypto experience are paid up to 20% more compared to those in traditional finance.
The new regulations will have a significant impact on the crypto industry in Hong Kong. It will be interesting to see how the industry responds to the new requirements and how long it will take to fill the required RO positions.