Hong Kong’s first licensed cryptocurrency exchange

The Securities and Futures Commission (SFC) has agreed in principle to issue a licence to cryptocurrency firm OSL Digital Securities Ltd (OSL) to operate a virtual asset trading platform under a licence for Type 1 (dealing in securities) and Type 7 (providing automated trading services) regulated activities pursuant to the SFC’s new opt-in licensing framework for the regulation of virtual asset trading platforms.

The licence will permit OSL to operate a brokerage and automated trading service for virtual assets, including security tokens. Final approval by the SFC is subject to fulfilment of certain conditions.

On 6 November 2019, the SFC announced its regulatory approach to licensing virtual asset trading platforms which includes requirements on hot and cold digital wallet insurance, client asset segregation, know-your-customer, anti-money laundering, maintenance of orderly markets and other virtual asset specific controls (see link – Regulation of virtual asset trading platforms). As summarised in our publication (Opt-in regulation of virtual asset trading platforms), the SFC integrates specific requirements for virtual asset platforms while maintaining traditional rigorous securities regulations in its new framework.

Regulation in the cryptocurrency space provides certainty and confidence to investors who have become accustomed to traditional finance products. At the same time, investors can take comfort in additional protections under the new framework which has been tailor-made for the virtual asset class. Through the opt-in licensing mechanism, investors will now have the ability to choose and differentiate between regulated platforms and unregulated platforms.

This ground-breaking development is very much welcomed by the cryptocurrency industry in Hong Kong, and is a positive step towards establishing Hong Kong and the SFC as one of the frontrunners in Asia in regulating cryptocurrency platforms. We expect to see more cryptocurrency firms applying for and being licensed by the SFC going forward.