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Hong Kong Securities and Futures Commission (SFC) CEO Julia Leung Fung-Yi spoke about Hong Kong’s adoption of Web3 regulation following the crash of FTX cryptocurrency exchange last November, noting that cryptocurrency trading is an important part of the virtual asset ecosystem.
Leung reportedly explained during a recent keynote that the new licensing system for virtual asset providers will provide investor protection while taking into account the risks faced by financial institutions. In the executive’s view, bringing virtual asset providers into the regulatory system was the only way to innovate and build market confidence after FTX’s bankruptcy.
Hong Kong used the FTX crash to mitigate the regulatory risks associated with centralized exchanges. In December, nearly 30 days after the stock market crash erupted, its legislative council included virtual asset service providers in the same legislation that governs traditional financial institutions.
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The new rules introduce strict AML rules and investor protection laws for virtual exchanges looking to set up a business in Hong Kong. It is also introducing a new licensing scheme that allows retail investors to trade virtual assets. Until recently, digital asset trading was limited to professional investors and traders with bank assets of at least $1 million.
According to Leung, Hong Kong’s cryptocurrency licensing system is a good example of China’s “one country, two systems” policy. Cryptocurrencies have been banned in mainland China since 2021, while Hong Kong has taken a different approach by creating a favorable environment for crypto businesses.
Over the past 12 months, over 150 Web3 companies have launched operations at Hong Kong’s Cyberport, a digital hub set up by the local government to promote innovation. The influx came after the government allocated 50 million yuan ($7 million) to speed up Web3 development.