May 12, 2024
Hong Kong Officials Propose Self-Regulation for its Crypto Industry
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Hong Kong Officials Propose Self-Regulation for its Crypto Industry

The Hong Kong Securities & Futures Professionals Association (HKSFPA) urges crypto firms in the city to establish a self-regulatory committee for compliance oversight among peers.

Promoting Industry Development

In an April 22 recommendation letter, the HKSFPA emphasizes the necessity for an organization to foster the holistic growth of the financial market industry in Hong Kong. The initiative aims to maintain the city’s competitiveness in the global securities market and reinforce its status as an international financial hub.

The proposal suggests empowering industry players with licensing authority through “statutory self-regulating” and autonomous bodies, a departure from traditional regulatory oversight by the Securities & Futures Commission (SFC).

“In the case of Hong Kong, the Commission recommends that the Securities and Futures Commission still retains the power to supervise market conduct, but splits the licensing power to solely the securities industry, A self-regulatory institution composed of the futures industry, asset management industry and virtual asset industry.”

Balancing Regulation and Development

Hong Kong Monetary Authority, one of the city’s financial regulators (Wikipedia Commons)

While advocating for self-regulation, the HKSFPA acknowledges the importance of maintaining a balanced approach to supervision and development in the virtual assets industry. It seeks to prevent excessive regulatory measures that could stifle innovation and growth.

However, the effectiveness of self-regulation hinges on achieving a balanced risk-reward dynamic. Lithuania’s experience serves as a cautionary tale, as the country plans to tighten crypto regulations following compliance failures and embezzlement cases despite initially adopting a lenient approach.

Divergent Regulatory Approaches

Comparatively, Hong Kong regulators have displayed greater tolerance towards virtual asset firms than counterparts in other jurisdictions. The SFC’s approval of spot Bitcoin and Ether exchange-traded funds for issuers reflects a progressive stance towards crypto investments. Moreover, granting official virtual asset licenses to exchanges like Hashkey and OSL demonstrates a commitment to fostering a conducive regulatory environment for the industry’s development.

In contrast, the U.S. Securities and Exchange Commission’s reluctance to approve a spot Ether ETF and reluctance to issue specific licenses for crypto exchanges underscores a more stringent regulatory stance. Despite ongoing discussions, the outlook for approvals remains uncertain, signaling potential challenges for crypto firms operating in the U.S. market.

Image by tawatchai07 on Freepik

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