The Hong Kong Securities and Futures Commission has set a minimum insurance requirement of 50% for licensed cryptocurrency exchanges handling client assets.
As OSL Exchange reported last week, a minimum of 50% insurance coverage applies to all assets in custody. At the same time, OSL announced that it had signed a two-year partnership with Canopius, the underwriting syndicate of Lloyds of London, for an insurance policy covering 95% of its users' assets.
HashKey Exchange, another licensed virtual asset trading platform in Hong Kong, also signed a cryptocurrency insurance agreement with OneInfinity on November 16, 2023, with the option to extend coverage to incidents related to “server downtime, data backup and load management.” in future. According to local news reports, the coverage will protect users' assets between $50 million and $400 million.
Since Hong Kong opened up cryptocurrency trading to retail investors last August, OSL and HashKey remain the only exchanges licensed to trade virtual assets. At the time of publication, 13 organizations had applied for such licenses. As part of the licensing requirements, applicants must undergo stringent due diligence tests, such as a traditional financial audit, which is broader in scope than proof of reserves.
Although the license application fee costs only a few hundred dollars, each of the Web3 companies spends up to $25 million to build their application for such licenses. Much of the cost comes from developing the product and building a team, often from scratch for applicants who are traditional financial institutions with no previous exposure to cryptocurrency.
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