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The aftermath of the FTX crypto exchange failure in November prompted the Hong Kong Securities and Futures Commission (SFC) to take decisive action, according to CEO Julia Leung Fung-yee. Recognizing the importance of virtual assets and their trading in the digital financial ecosystem, Hong Kong swiftly moved to integrate them into regulatory mechanisms to mitigate risks associated with centralized exchanges.
In December 2022, Hong Kong's legislative body modified its laws to bring digital asset service providers under the same legal framework as traditional financial entities, drawing lessons from FTX's collapse. Leung emphasized the significance of the updated licensing system for virtual asset providers, which strikes a balance between investor protection and addressing potential risks faced by financial institutions. Including these providers within the regulatory sphere is seen as a crucial step to strengthen market trust and foster post-FTX innovation.
The newly implemented regulations introduce stringent Anti-Money Laundering (AML) directives and enhance protective measures for investors, creating an inviting environment for digital asset exchanges looking to establish businesses in Hong Kong. Moreover, these rules grant retail investors the opportunity to trade virtual assets, a privilege previously limited to professional investors and traders with a minimum of $1 million in liquid assets.
Leung commended Hong Kong's progressive approach to crypto licensing, highlighting the city's unique position under China's "one country, two systems" principle. While cryptocurrencies remain prohibited in mainland China since 2021, Hong Kong stands out by offering a supportive climate for the crypto sector.
In the past year, following a government initiative to inject 50 million yuan ($7 million) to accelerate Web3 growth, Hong Kong's Cyberport has witnessed an influx of over 150 Web3 firms. These new entrants exemplify Hong Kong's commitment to nurturing innovation within its digital ecosystem.
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