According to a Nov. 3 report published by The South China Morning Post, Hong Kong is set to ban retail investors from trading on unregulated crypto exchanges.
From now on, all exchanges that operate one of the world's largest financial markets are required to be licensed.
The Securities and Futures Commission (SFC) of Hong Kong released a comprehensive regulatory framework for cryptocurrency exchanges back in 2019 that required crypto trading platforms to only serve professional investors. It also included rules combating money laundering and asset management.
The latest regulatory push is significantly more aggressive since it also concerns cryptocurrencies like Bitcoin separate from those digital assets that are classified as securities or futures.
CEO Ashley Alder explains that exchanges will no longer have a choice as to whether to apply for a license or not:
This is a significant limitation, as under the current legislative framework if a platform operator is really determined to operate completely off the regulatory radar it can do so simply by ensuring that its traded crypto assets are not within the legal definition of a security.
Hong Kong regulators have now moved to officially end the honeymoon phase of local crypto exchanges, and BitMEX might be the last straw that caused this clampdown.
After famously renting the entire floor of Cheung Kong Center—the most iconic high-rise building in Hong Kong—in 2018, the exchange ended up getting sued by the Commodity Futures Trading Commission (CFTC) a little over two years later.
Neighboring China—which is vying to seize more control over the autonomous region—imposed a blanket ban on digital currency trading and initial coin offerings (ICO) back in September 2017.
The new regulatory regime is expected to bring consolidation to Hong Kong's crypto industry instead of stamping it out, according to BC Technology Group CEO Hugh Madden:
The new regulatory regime is likely to bring consolidation in the industry because not all the trading platforms that operate in Hong Kong today can satisfy some of the licensing requirements and related compliance costs.