Hong Kong Financial Sector Prepares for Digital Asset Trading Boom

• Financial services companies in Hong Kong are preparing to provide retail clients with the ability to trade digital assets in the upcoming months.
• The Legislative Council approved an amendment to the anti-money laundering and counter-terrorist financing act which will place virtual-asset service providers under the jurisdiction of the Securities and Futures Commission (SFC).
• Brokers such as Victory Securities and Interactive Brokers are not required to hold additional licenses to provide their clients with trading services for exchange-traded funds based on bitcoin and ether listed on the Hong Kong Stock Exchange.

In recent months, the financial services industry in Hong Kong has been preparing to open up trading of digital assets to retail investors. This is due to an amendment to the anti-money laundering and counter-terrorist financing act which will place virtual-asset service providers under the jurisdiction of the Securities and Futures Commission (SFC). This amendment was approved by the Legislative Council and is set to come into effect on June 2023.

Currently, only professional investors or those with at least HK$8 million (US$1.03 million) in bankable assets are allowed to trade in virtual assets. However, this amendment will open up the opportunity for more retail investors to benefit from the exploding demand for virtual assets. This move marks a major step in Hong Kong’s ambition to strengthen its position as a regional hub for financial technology.

Brokers and fund managers are gearing up to take advantage of this new opportunity. For example, Victory Securities and Interactive Brokers are not required to hold additional licenses to provide their clients with trading services for exchange-traded funds based on bitcoin and ether listed on the Hong Kong Stock Exchange. Many other financial services firms are also setting up their operations in order to offer their services to the growing number of retail investors interested in trading digital assets.

The SFC is set to release a consultation paper on how to best open up trading in virtual assets to retail investors. This paper will provide guidance on the regulatory requirements that must be met in order to ensure the safety and soundness of the market. As such, it is expected to provide a comprehensive framework for local financial services firms to operate in the industry.

The amendment to the anti-money laundering and counter-terrorist financing act is a major step forward for the industry in Hong Kong. It will open up the possibility for more retail investors to benefit from the growing demand for virtual assets. Brokers and fund managers are already preparing for trading in virtual assets, and the SFC will soon release a consultation paper that will provide further guidance on the regulatory requirements. With this guidance, the industry can now move forward with confidence and look forward to a bright future for digital asset trading in Hong Kong.

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