(May 23): Hong Kong said retail investors can trade crypto under its new rulebook for the sector, stepping up a drive to develop a digital-asset hub even as the industry and regulators clash elsewhere in Asia.

The city’s Securities and Futures Commission on Tuesday detailed the conclusions of a consultation on retail participation. The agency stuck with a plan to let individual investors buy and sell bigger tokens like Bitcoin and Ether starting June 1 when a new licensing regime for virtual-asset platforms begins.

The framework seeks to woo crypto firms while safeguarding investors and is part of Hong Kong’s effort to restore its status as a cutting-edge financial centre. But any embrace of digital assets is controversial after a market rout in 2022 that sparked a spate of bankruptcies like the collapse of FTX.

“It’s not a full open-arm stance as they want to maintain financial stability while opting for financial innovation,” said Cici Lu, founder of Venn Link Partners, a blockchain adviser. “That’s a pragmatic approach. People shouldn’t expect an open buffet for all while applying for a licence in Hong Kong.”

Larger tokens

Individual investors can trade larger coins on exchanges licensed by the SFC under Hong Kong’s new approach. Safeguards include knowledge tests, appropriate risk profiling and reasonable limits on exposure.

The coins should be included in at least two acceptable, investible indexes from independent providers, one with experience in the traditional financial sector.

The SFC said in its conclusions that licensed platforms should “comply with a range of robust investor protection measures covering onboarding, governance, disclosure and token due diligence and admission, before providing trading services to retail investors”.

From June 1 unlicensed exchanges, including overseas platforms, actively marketing to Hong Kong investors will be breaking the law, Keith Choy, interim head of intermediaries at the SFC, said in a briefing.

“We will be closely monitoring,” Choy added.

Full circle

Officials have already permitted exchange-traded funds investing in CME Group Inc. Bitcoin and Ether futures, triggering a flurry of product launches.

Hong Kong in some ways is coming full circle as it used to be a digital-asset hub in earlier years before taking a more sceptical stance. China’s ban on crypto in 2021 dulled the city’s allure as a conduit for mainland cash.

Regulators globally are grappling with how to handle the crypto industry. Jurisdictions like Hong Kong and Dubai are trying to attract crypto-related investment. Singapore plans curbs on retail-investor participation.

South Korea this week may pass its first standalone crypto legislation after a series of scandals. The US has cracked down on the sector.

Malaysia, Philippines

In the past few days, tension flared between regulators and the industry in Malaysia and the Philippines. Malaysia reprimanded the Huobi Global platform for operating “illegally” and ordered it to stop activities there. A Huobi spokesperson said the exchange hasn’t operated in the country since 2022.

Meanwhile, the Philippines alleged that a non-US derivatives trading venue recently started by Gemini Trust Co lacks the necessary permits for the nation. A Gemini spokesperson earlier declined to comment.

Questions remain over Hong Kong’s crypto pivot given the industry has retrenched and only partially recovered from a US$1.5 trillion crash last year. Firms such as Huobi Global, OKX and Amber Group have said they plan to apply for licences under the new regime

Hong Kong Monetary Authority Chief Executive Eddie Yue has indicated companies should expect an exacting regulatory backdrop.

“We will let them create the ecosystem here and that actually brings a lot of excitement,” Yue said earlier this month in an interview at the Bloomberg Wealth Asia Summit. “But that doesn’t mean light-touch regulation.”