In a bid to tighten up Hong Kong’s cryptocurrency framework and stop trading platforms from operating away from the regulatory radar, Hong Kong’s Securities and Futures Commission (SFC) announced that it will require all cryptocurrency trading platforms to be regulated whether or not they trade securities.
How Will Hong Kong's SFC Requirements Impact The Cryptocurrency Framework?
Amidst the global race for jurisdictions to become FATF compliant by the June 2021 deadline, will this new framework make Hong Kong fully FATF compliant? What does this framework mean for cryptocurrency businesses in Hong Kong and how will this impact Hong Kong’s position as a crypto hub?
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Elsa Madrolle, Managing Director, International at CoolBitX, an international blockchain security company that created Sygna Bridge, the market-ready FATF Travel Rule solution, offers her perspective on Hong Kong’s latest framework. As part of Elsa’s role at CoolBitX, she is constantly in contact with key regulators and industry decision makers to help virtual asset service providers better understand how they can remain compliant in an ever-changing regulatory landscape.
Commentary from Elsa Madrolle, Managing Director International CoolBitX, Ltd, the international blockchain security company
The regulatory development in Hong Kong marks its commitment towards being fully compliant with the FATF travel rule recommendations. As illustrated by this announcement, there are still gaps between its current regulatory framework which this consultation and subsequent legislation will seek to close. The FATF’s September 2019 evaluation deemed Hong Kong to be “largely compliant” with its guidance, but not yet fully compliant with the travel rule. This is one of the remaining gaps to close before being fully aligned with FATF’s recommendations.
The Hong Kong SFC stated that as a FATF member, they are under the obligation to align themselves with FATF AML guidelines, which includes regulating or licensing of all VASPs. This includes the need to “widen the net across centralised platforms”, which is what the new framework seeks to do but including all cryptocurrency exchanges under the HK SFC’s purview. By doing so, the SFC is likely to mirror the FATF’s definition of cryptocurrency exchanges as Virtual Asset Service Provider (VASP), by referring to them as “non-security token platforms”, which is a broader definition than “exchanges”.
While the consultation period is kicking off now, VASPs in Hong Kong should actively seek to participate in various working groups to provide feedback and voice out their concerns. As the proposal still needs to go through the legislative process, this will give VASPs time to understand and implement the requirements, although they would need to start considering what it will mean to be regulated or licensed, with implications such as developing a compliance department and finding a travel rule solution provider to fulfil their regulatory obligations.
Hong Kong joins the ranks of Japan, Singapore, and South Korea, who currently lead at the forefront of global cryptocurrency regulation, albeit with different individual regulations and political objectives. For instance, Japan has been issuing guidance for a long time given its importance in the global market, and has a Self-Regulatory Organization (SRO) that continues to refine its laws to fully align with FATF. Singapore has set the tone for the region with the Payment Services Act by combining consultation with clear regulation and is a reference point for many other countries. South Korea seemed to be benchmarking other countries for a while but has also issued a comprehensive framework with its own specificities. With Hong Kong’s joining these three countries to extensively regulate cryptocurrencies, the regulatory development is expected to enhance its competitive position as a crypto hub.
About Elsa Madrolle, Managing Director, International, CoolBitX
Elsa Madrolle is Managing Director, International for CoolBitX, Ltd., where Elsa is responsible for the expansion of CoolBitX’s business outside the APAC region. As Managing Director, Elsa has a global perspective on the development of KYC/AML regulation in crypto, closely examining country competitiveness, local cryptocurrency regulations, and the status of AML compliance specifically in the EU, US, Africa, and the Middle East. She has been meeting with VASPs and regulators across Europe, US, and Asia to understand implementation concerns. In May, Elsa will be representing CoolBitX at the FATF’s 2020 private sector consultation to discuss how VASPs have progressed with implementation.
Elsa’s extensive career places her in a unique position to bridge the gap between innovative technology and traditional finance. Prior to her appointment at CoolBitX, she held several roles at leading derivatives exchange CME Group, most recently as Head of EMEA and Asia-Pacific Buyside Client Development & Sales. During her time at CME Group, Elsa was also part of the organization’s digitisation team, which was responsible for exploring blockchain-based innovations including the launch of CME’s Bitcoin Futures contract in 2017. Previously, Elsa held senior business development roles at JPMorgan and Deutsche Bank. She received a Bachelor of Arts degree in Politics from the University of Maryland and an MBA from Georgetown University. She also holds a Chartered Alternative Investment Analyst designation.
CoolBitX Ltd. (CBX) is an international blockchain security company that is building the infrastructure necessary to close the gap between the mainstream market and crypto industry. Founded in 2014 by Michael Ou and backed by SBI Holdings, CoolBitX provides solutions for a rapidly-changing blockchain industry in order to foster the mass adoption of virtual assets through its two product lines: CoolWallet S and Sygna. CoolWallet S is a credit card-sized hardware wallet that allows for Bluetooth-enabled pairing with users’ mobile phones. The Sygna line of regulatory compliance products are tailored toward Virtual Asset Service Providers (VASPs), simplifying the process for VASPs to meet the compliance standards of the traditional financial industry and improve the reputation of the virtual currency industry. For more information on CoolBitX, visit https://coolbitx.com/.