Recently, a person familiar with the matter said that as of now,No more than five encrypted asset exchanges have been included in the regulatory sandbox of the Hong Kong Securities Regulatory Commission after strict screening.

In response to this news, Fang Hongjin, co-chairman of the Hong Kong Blockchain Association, said:These exchanges are not currently in the regulatory sandbox stage, but have entered the final approval and can be put into operation, but still need to apply for a No. 7 license.This means that soon there will be a number of encrypted asset exchanges that will be able to operate in Hong Kong with a license.

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The latest details of the encryption exchange license application

Hong Kong openly accepted sandbox applications on February 14, 2019. Since then, exchanges such as Huobi have become the first batch of institutions to apply to enter the regulatory sandbox of the Hong Kong Securities Regulatory Commission.

Judging from the current news, some digital asset exchanges have passed the strict inspection of the regulatory sandbox and entered the final stage of license approval.image description

Top Ten Types of Licenses / Picture Source Network

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The rules for virtual asset exchanges to first enter the sandbox and then obtain licenses come from the "Statement on the Regulatory Framework for Virtual Asset Portfolio Management Companies, Fund Distributors and Trading Platform Operators" issued by the Hong Kong Securities Regulatory Commission in November 2018 ( hereinafter referred to as the "Statement").

The Statement sets out a conceptual framework for the possible regulation of virtual asset trading platforms. Hong Kong can provide a compliance path for platform operators who are capable and willing to follow strict standards and practices, and will combine license holders and those who do not intend to apply for a license. operator distinction.

The China Securities Regulatory Commission’s plan is to include those virtual asset trading platform operators who intend to and have proven their commitment to follow strict standards into the regulatory sandbox, and explore the possibility of supervision and operation with the platform.

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Regulatory situation in Hong Kong is becoming clearer

It is a new idea to first enter the sandbox and then issue a license, which means that virtual asset exchanges that intend to apply for a license need to undergo strict review in the sandbox. Moreover, the Hong Kong Securities Regulatory Commission has set extremely high thresholds for exchanges to enter the sandbox. People familiar with the matter said that 99% of the so-called "large international trading platforms" cannot enter the sandbox list.

First of all, for an exchange seeking a license, the China Securities Regulatory Commission requires its legal entity registration place and company decision-making power to be in Hong Kong, which eliminates a large number of license competitors.image description

Hong Kong Securities Regulatory Commission / Tuyuan Network

In addition, the China Securities Regulatory Commission has requirements for technology, investor asset insurance, and third-party audit standard reports.Regulators will also question measures such as Know Your Customer (KYC), Anti-Money Laundering (AML), and Counter-Terrorist Financing (CTF).

The strict rules reflect Hong Kong's prudent attitude towards virtual asset regulation. From the release of the "Statement" in 2018 to the present, Hong Kong's virtual asset regulatory policies have been gradually improved through exploration.

On October 4, 2019, Hong Kong announced the application rules for virtual asset asset management licenses. On November 6, the Hong Kong Securities Regulatory Commission issued "Warning on Virtual Asset Futures Contracts" and "Position Statement: Supervision of Virtual Asset Trading Platforms" (hereinafter referred to as "Position Statement")

The Hong Kong Securities Regulatory Commission officially stated its position: Under the existing regulatory framework, platforms that can provide customers with securities-type virtual assets or token trading services are within the scope of the supervision of the Securities Regulatory Commission;However, the China Securities Regulatory Commission has no right to issue licenses or supervise platforms that only buy and sell non-securities virtual assets.

The "Position Statement" elaborates the Hong Kong Securities Regulatory Commission's regulatory rules for virtual asset trading platforms, involving asset custody, KYC certification, market manipulation, compliance supervision, accounting and auditing, professional investor thresholds, anti-money laundering and other measures.

The "Position Paper" pointed out that if the China Securities Regulatory Commission decides to grant a license to a qualified platform operator, it must ensure that it meets the licensing conditions.The key licensing conditions will be in accordance with section 116(6) of the Securities and Futures Ordinance. Among them, there are five key requirements worth noting:

• Platform Operators may only provide their services to professional investors;

• Strict inclusion criteria must be established to screen virtual assets that can be traded on its platform;

• Only provide services to customers who are fully aware of virtual assets;

• Platform Operators will be required to employ reputable external market surveillance systems to complement their own market surveillance policies and controls;

• Platform operators should also ensure that the insurance they purchase against the risks involved in the custody of virtual assets is in effect at all times.

The exchange meets all licensing requirements and will continue to be regulated by the China Securities Regulatory Commission after obtaining the license.

The licensee must appoint an independent professional firm acceptable to the SFC to conduct an annual review of the licensee's activities and operations, and prepare a report confirming compliance with the licensing conditions and all relevant laws.

The first report must be submitted to the SFC within 18 months from the date of approval of the license, and subsequent reports should be submitted to the SFC within four months after the end of each financial year.

Any breach by an exchange of any licensing conditions would be considered a "misconduct" under Part IX of the SFO, which would not only affect the platform operator's continued license, but could also lead to disciplinary action by the SFC ( such as revocation of licence, public reprimand or fine).

After the release of the "Statement" in November 2018, the China Securities Regulatory Commission supervised and observed the exchanges in the sandbox, and finally came up with the above plan, which is a set of strict regulatory standards applicable to licensed institutions and the virtual asset market.epilogue

In terms of horizontal comparison, Hong Kong's regulatory policies are more relaxed than those of the Mainland, but stricter than those of Singapore.

The Hong Kong Securities Regulatory Commission has recognized the feasibility of the virtual asset exchange regulatory conceptual framework in Hong Kong, and believes that it is in line with the interests of investors and the development of the local market and international regulation.While opening up the application for virtual asset exchange licenses, the China Securities Regulatory Commission has also maintained a prudent attitude towards the supervision of exchanges, strictly examining the qualifications of applicants, and ensuring that platform operators comply with regulatory rules.

Exchanges in Hong Kong need to have sufficient financial stability to deal with risks such as theft or hacking, and must insure 100% of the online virtual assets (hot wallets) and 95% of the offline virtual assets (cold wallets) in the platform . Tokens that want ICO need to be subject to trading restrictions within the first 12 months to prevent "cutting leeks".

At present, a small number of encrypted exchanges have moved from the Hong Kong regulatory sandbox to the final approval stage. If the progress goes smoothly, my country will soon usher in the first batch of licensed encrypted asset exchanges.As soon as this case is opened, more encrypted asset exchanges will operate in my country with licenses in the future, and my country's blockchain industry will also accelerate its development on the road to compliance.