The SFC has confirmed that it will allow licensed platform operators to provide non-securities brokerage services to retail investors.

The service of cryptocurrency trading is subject to compliance with a series of appropriate investor protection measures, including business with customers.

measures in terms of establishment, token inclusion, token due diligence program and information disclosure.

1. Establish business relationships and knowledge assessment with customers

Regulators are ready to allow virtual asset trading platforms to accept business from retail investors, but require them to take steps to protect investors. One of the measures is to assess investors' understanding of virtual currencies. For example, check whether they have taken any courses, have relevant work experience, and how many times they have bought and sold virtual currency before. The point is, as long as they have bought and sold five or more times in the past three years, it cannot be assumed that they understand enough. Even if retail investors understand virtual assets, platforms still have an obligation to assess their risk tolerance.

In general, if a platform wants to accept retail investors, it must first prove that investors have sufficient understanding of the characteristics and risks of virtual currencies and assess their risk tolerance.

2. The platform needs to be well preparedGeneral Token Inclusion Criteria

If the platform wants to accept any currency for trading, it must do due diligence on it. Now regulators are relaxing the rules. The platform only needs to consider the regulatory status of virtual assets in Hong Kong, not around the world. For example, see whether this virtual currency is a security token in Hong Kong. However, the platform still has to ensure that its operations comply with the laws of all jurisdictions in which it does business.

Because if it is illegal in other places, it will still affect the platform's operating qualifications in Hong Kong.

The answer is no. Because it is too costly to submit a legal opinion for each virtual currency, the regulator has canceled the requirement for platforms to submit written legal opinions on each virtual currency. However, platforms still need to ensure that they are only operating non-securities tokens on their platforms, so during approval, regulators may require platforms to provide legal opinions on certain specific tokens.

Qualified large virtual assets refer to virtual assets that are simultaneously included in the indexes of at least two independent index providers.

At least one of the index providers specializes in providing traditional financial market indices. These indices must meet certain conditions to be recognized:

1) These indices must be investable, meaning that the virtual assets they include have sufficient liquidity.

2) The calculation method of the index must be objective and regular.

3) Index providers must have sufficient expertise and technical support to provide and review these indices.

4) The methodologies and rules for compiling these indices must be clearly documented, transparent and consistent.

According to this standard, Bitcoin and Ethereum clearly meet the requirements and can be opened to individual investors for trading.

In addition to prohibiting trading platforms from offering security-type virtual currencies to retail investors for buying and selling. It indicates that since the value of stablecoin may be unstable, there is a high risk of large-scale redemption. Before stablecoins are regulated in Hong Kong, they should not be included in the platform for retail investors to buy and sell. The Hong Kong Monetary Authority issued regulatory proposals on stablecoins in January 2023.

It is expected that regulatory policy for stablecoins will be implemented in 2023/2024.

This question goes back to how the Hong Kong Securities Regulatory Commission defines virtual asset services. The following is its definition:

According to Schedule 3B of the Anti-Money Laundering Ordinance and the VASP Guidelines, the activities of virtual asset services (VA Service) are defined as: only operating a virtual asset exchange, that is:

(a) providing, by electronic means, services that:

(1) The service:

A. Offers to buy or sell virtual assets are routinely made or accepted in a manner that creates or results in binding transactions; or

B. People frequently introduce or identify each other with the intention of negotiating or completing the sale of virtual assets, or they frequently introduce or identify each other with the reasonable expectation that they will negotiate or complete the sale of virtual assets in a certain manner, and negotiate or complete such sales in such a manner that a binding transaction is formed or results in the occurrence of a binding transaction; and

(2) in the provision of such service, client funds or client virtual assets are directly or indirectly held by the person providing the service; and

(b) any virtual asset trading activities and ancillary services provided by the platform operator to its customers that are conducted outside the platform, and any activities conducted in relation to virtual asset trading activities that are conducted outside the platform.