Securities and Futures Commission (SFC) guidelines prohibit “crypto gifts” designed to incentivize retail investors, which likely include airdrops. According to an announcement this week, the SFC will begin accepting applications for licenses for crypto trading platforms starting June 1.
The regulator has agreed to allow licensed virtual asset providers to serve retail investors, provided operators assess an understanding of the risks involved, according to a report released Tuesday on its consultation on policy recommendations. The SFC released its initial recommendations to the public in February.
The framework explicitly prohibits crypto “gifts” intended to encourage retail investors to invest – which likely includes airdrops.
The guidelines, some of which have been amended in response to public feedback, place the responsibility for conducting due diligence squarely on platform operators and emphasize that inclusion in two acceptable indices is only the minimum criterion for admission to trading.
Under the rules, crypto exchanges must maintain a capital of at least 5,000,000 Hong Kong dollars ($640,00) at all times and submit to the SFC at the end of each month the platform’s available and required liquid capital, an overview of bank loans, advances and credit facilities, and a profit and loss analysis.
The document also details how retail investors can use trading platforms and how due diligence is conducted when listing tokens. All tokens listed on exchanges must undergo due diligence before listing, even if they are already listed on another platform. They must be audited for intelligent contracts by independent auditors. The conclusions said that platform operators do not have to appoint independent external members to token review committees as long as they manage conflicts of interest appropriately.
The SFC will allow platforms to segregate client and proprietary assets through a trust agreement or the licensed platform setting aside funds. The compensation scheme of the respective platform should fully cover clients’ virtual assets.
In response to the suggestion of using third-party custodians to hold client funds, the SFC responded that this would hinder monitoring and enforcement, as there is no regulatory framework for custodians of virtual assets.
The SFC said it would conduct an independent review of the authorization of derivatives, recognizing that they are essential to institutional investors.
On the implementation of the Financial Action Task Force’s (FATF) travel rule for the exchange of information on crypto transactions between financial institutions, the SFC said that if the required information cannot be transmitted immediately to the beneficiary institution, it will accept the transmission as soon as possible after the transfer of virtual assets by January 1, 2024.
The guidelines also clarify anti-money laundering requirements and the criteria for imposing fines on platforms for violating these requirements.