First Digital Trust COO Comments On Hong Kong’s Proposed Crypto Regulations
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In 2019, Hong Kong’s Securities and Futures Commission (SFC) launched a regulatory framework for the crypto sector. The framework was targeted at crypto trading platforms that supported trading in digital assets that were officially classified as securities or futures. The law passed was in contrast to other financial centers in Asia that have well-defined licensing regimes for crypto exchanges.

Proposed Regulatory Changes

After a year of operating under the new regime, Hong Kong’s regulators have reconsidered their stance on the regulation of crypto exchanges. According to the chief executive of the SFC, Ashley Alder, the current regime comes with major limitations.

If a platform does not support trading in digital assets that are classified as securities, it can choose not to seek a license from the SFC. Consequently, it means that if a platform was determined to stay off the radar, it could do so by ensuring it does not support trading in digital assets classified as securities.

Under the proposed anti-money laundering legislation, all crypto exchanges operating in Hong Kong will have to apply for an SFC license. There are dozens of crypto exchanges operating in Hong Kong, including some of the biggest in the crypto market. However, many have not applied for an SFC license.

Thus far, the SFC has not licensed any crypto exchange in Hong Kong under the existing regulatory regime. However, they have agreed in principle to license OSL Digital Securities, a crypto firm under the BC Group, which is backed by Fidelity.

First Digital Asset COO Comments On The Development

Shortly after the Hong Kong Securities and Futures Commission released their proposal, professionals in the digital asset space were quick to comment on the developments. Visionary Financial had a chance to speak to Gunnar Jaerv, The COO of First Digital Trust. The company operates in Hong Kong and is an industry-leading provider of digital asset custody services.

In October 2020, the company announced the launch of a $3 million funding round. The goal of the funding round was to help them achieve their goal of bringing trust into the digital asset space. With the funds they raised, they plan to introduce the most secure compliance infrastructure for digital assets and fiat. By doing so, they will resolve the issue of weak or non-existent AML and KYC protocols on crypto exchanges.

According To The First Digital Trust COO:

“While we welcome with open arms the new consultation to bring virtual assets (VAs) that are not securities within the regulatory remit of Hong Kong’s securities regulator, there are certain elements of the FTSB proposal that could be strengthened in order for it to translate into the digital world.

As a start, clearer definitions around what trading platforms are covered would avoid confusion amongst financial service providers. It would also be interesting to know how regulators are planning to cope with the continuing revolution in crypto and DeFi concepts.”

Jaerv also added that: 

“Re-thinking assumptions about Anti-Money Laundering (AML) that were made 30 years ago by FATF, and are still current today will also avoid disputes between business developers and Money Laundering Reporting Officers (MLROs).

The current proposal is a good start, but it can be improved if it demands greater transparency from all financial providers to issue responsible verification systems. Companies need sufficient technology in order to comply with AML regulations, which is why technology built around transaction infrastructure must be made a priority in order to properly protect users’ assets from fraud and theft.”

Hong Kong seems genuinely interested in providing supportive regulation for the crypto sector while mitigating any risks and threats. They have created an avenue for dialogue and industry leaders in the crypto sector will have an opportunity to submit proposals on how to regulate the sector.”

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