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HashKey offers open retail and compliant OTC trading, highlighting 5 key points of Hong Kong's cryptocurrency policies.

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HashKey and OSL trading platforms announced the official upgrade of their Type 1 and Type 7 licenses, becoming licensed trading platforms for retail users in Hong Kong.

Original Title: "Five Key Points of Hong Kong's Cryptocurrency Policy in the Next Year After Opening Trading to Retail Investors"

Source: Wu Shuo Blockchain

On August 3rd, HashKey and OSL trading platforms announced that licenses 1 and 7 have officially been upgraded, becoming licensed trading platforms for retail users in Hong Kong. In addition to supporting fiat currency deposits and withdrawals, the HashKey trading platform will also collaborate with Standard Chartered Bank, DBS Asia, ZA Bank, and others to provide users with fiat currency deposit and withdrawal services. Furthermore, the platform has also opened up compliant OTC trading. What other highlights can we expect in the next year after opening up trading for retail investors?

1. What coins are available for retail trading?

According to the new regulations released by Hong Kong in March, licensed platform operators who intend to provide virtual assets to retail customers should also ensure that the selected virtual assets are qualified large virtual assets and meet the following specific token inclusion criteria: "Qualified large virtual assets" refer to virtual assets included in at least two "accepted indices" launched by at least two independent index providers; licensed platform operators should ensure that at least one of the two indices is launched by an index provider with experience in publishing traditional non-virtual asset financial markets, such as an index provider that has launched an index fund tracking an approved index recognized by the Securities and Futures Commission.

According to statistics from @tier10k, currently, the five mainstream traditional institutions have launched indices, and Bitcoin BTC and Ethereum ETH are included in all indices; Litecoin LTC and Polkadot DOT rank second, with four indices included; Bitcoin Cash (BCH) and SOL rank third, with three indices included; Cardano Avalanche Polygon and Chainlink rank fourth, with two indices included. In addition, EOS BNB ATOM FIL ETC XLM UNI are also included once. However, it should be noted that major indices will also increase or decrease with changes in the market.

William believes that, subject to the requirements of the China Securities Regulatory Commission, there are currently 13 encrypted assets that can be used as alternative materials for retail trading, namely: BTC, ETH, ADA, SOL, MATIC, DOT, LTC, AVAX, UNI, LINK, AAVE, BCH, and CRV. Of course, these currencies may not be allowed to provide trading to retail investors. This is because assets available for retail trading must meet the three conditions of "due diligence review by the exchange + qualified large virtual assets + written approval from the China Securities Regulatory Commission". For example, the operating situation of SOL and BCH is currently not optimistic and may be excluded by the China Securities Regulatory Commission.

Currently, Hashkey only offers 5 assets and 7 trading pairs, including BTC, ETH, USDT, USDC, and USD; OSL only offers BTC and ETH.

2. Securities firms and banks allow ordinary citizens to buy coins

On June 26th, HSBC, the largest bank in Hong Kong, allowed its customers to buy and sell virtual asset ETFs listed on the Hong Kong Stock Exchange, becoming the first bank in Hong Kong to allow customers to trade virtual asset ETFs listed on the HKEX. This move will expand local users' exposure to cryptocurrencies. Currently, the cryptocurrency ETFs listed in Hong Kong include the CSOP FTSE Bitcoin Futures ETF, the CSOP FTSE Ethereum Futures ETF, and the Samsung Bitcoin Futures Active ETF.

The CFO of BC Technology, the parent company of OSL, a compliant Hong Kong exchange, Hu Zhenbang, stated that last year, the China Securities Regulatory Commission and the Financial Management Bureau issued a very clear guideline. If banks and securities firms want to provide digital asset services to customers, they must cooperate with licensed digital asset institutions. There are two ways to cooperate: one is to directly introduce customers, and the other is to apply to the China Securities Regulatory Commission to add digital asset services to their business scope through cooperation with licensed digital asset service providers on the basis of existing stock and bond services. Securities firms can open accounts on licensed digital asset trading platforms and buy and sell digital assets for their end customers. Of course, banks can also develop their own trading systems and apply for licenses, but since digital assets are not the main product of the banking industry, the more efficient way is to cooperate with external licensed digital asset platforms.

3. Third, fourth and subsequent Hong Kong licenses

The Hong Kong government began implementing the Virtual Asset Service Providers (VASP) licensing regime on June 1. Prior to this, the "Type 1 and Type 7" regime was implemented, which regulated licenses for Type 1 (securities trading) and Type 7 (providing automated trading services). Currently, the only companies that have obtained these two licenses are Hashkey and OSL.

VASP issuance system differs from the previous system mainly in the addition of open trading for retail investors, mandatory issuance (previously only available to professional investors and voluntary issuance), and increased investor protection. However, more hurdles have been set up to achieve the goal of screening high-quality cryptocurrency exchanges, such as the requirement to establish a physical office in Hong Kong, at least two ROs (licensed cryptocurrency institution executives) with years of experience in traditional financial institutions and cryptocurrency trading, a certain number of cryptocurrency users and trading volume before June 1, obtaining TCSP license and No. 1 and No. 7 licenses, and operating for at least one year and obtaining regulatory approval before obtaining a formal license.

At least 10 institutions have announced their application for the Hong Kong VASP license, including HashKey, OKX, Huobi, BitgetX, BitMart, Bybit, BitMEX, and Gate, as well as traditional institutions such as Yibojinrong.

Hu Zhenbang believes that there will not be too many exchanges that ultimately obtain licenses, estimated to be only four to five. This is because it requires sufficient capital, custody services, maintenance and stability of the trading system, investment in network security, compliance requirements close to traditional finance, and backend support. It is not easy for companies that do not have compliance business operations to meet these requirements.

5. Stablecoin Regulatory Framework

The regulatory framework for stablecoins in Hong Kong can be traced back to the first policy address after the inauguration of Hong Kong Chief Executive Carrie Lam in October 2022. At that time, she stated that the Hong Kong Monetary Authority was studying the market's views on regulating stablecoins and would ensure that the regulatory system is in line with international regulatory recommendations and suitable for local conditions.

On January 31, 2023, the Hong Kong Monetary Authority released a consultation summary on the discussion paper on crypto assets and stablecoins, recommending the inclusion of several activities related to stablecoins in regulation, and outlining the expected regulatory scope and main regulatory requirements in the summary document. At the same time, Binance, Deloitte, Alipay, Animnoca, Circle (USDC issuer), HSBC, Mastercard, Nova Technology, and WeChat all provided suggestions for the Hong Kong Monetary Authority's "Discussion Paper on Cryptocurrencies and Stablecoins".

On March 20th, Hong Kong Financial Secretary and Treasury Bureau Director, Christopher Hui, stated that the Hong Kong Monetary Authority is studying the regulatory system for "stablecoins" and aims to implement relevant regulations by 2024. On April 29th, the Hong Kong Monetary Authority released its 2022 annual report, emphasizing that the first objects to be regulated will be stablecoins that claim to be pegged to one or more legal currencies. In 2023, more detailed regulatory requirements will be formulated, taking into account various factors, including the latest market developments, proposals and best practices from international organizations on stablecoin regulation, and responses received on discussions on cryptocurrencies and stablecoins. On May 9th, the Chief Executive of the Hong Kong Monetary Authority, Eddie Yue, stated that in addition to the licensing of virtual asset platforms, a mandatory licensing system for stablecoins will be launched between 2023 and 2024.

In addition, regarding the issue of whether to use Hong Kong dollar stablecoins or US dollar stablecoins, Hu Zhenbang, Vice President of Hong Kong University of Science and Technology Wang Yang, and Fang Hongjin, Co-Chairman of the Hong Kong Blockchain Association, expressed different opinions. Hu Zhenbang believes that the possibility of Hong Kong dollar stablecoins is not too great, but there is a great international demand for US dollar stablecoins. If an issuer chooses Hong Kong as the place of issuance and accepts the supervision of the Hong Kong Securities and Futures Commission, it is possible. Wang Yang and Cai Wensheng called on the Hong Kong government to issue Hong Kong dollar stablecoins backed by Hong Kong's foreign exchange reserves, believing that the strong HKDG can challenge the dominance of the US dollar in this ecosystem, thereby achieving de-dollarization in substance. Under proper supervision, it can also serve as a role in reshaping the international strategy of the Hong Kong dollar by delivering stablecoins to other countries. Fang Hongjin criticized Wang Yang and Cai Wensheng's article, stating that the government's endorsement and supervision of Hong Kong dollar stablecoins is a fundamental misunderstanding of the role of the government in a market economy. Issuing Hong Kong dollar stablecoins is meaningful, but it should not be issued by the Hong Kong government. Instead, private institutions should issue them in compliance with the supervision of the Hong Kong government. It is impossible to achieve de-dollarization by promoting Hong Kong dollar stablecoins, given that the Hong Kong dollar and the US dollar are linked exchange rates and can be freely exchanged in Hong Kong.

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