An expert commentary from Ben Roth, Co-founder & CIO at Auros, the global market-making and algorithmic trading firm, ahead of Hong Kong’s June 1st update on wide-ranging implications for Asia’s crypto trajectory and, by extension, the world’s.
Is this the turning point that will determine the industry’s trajectory decades from now, or could the move open the jurisdiction to even greater competition from its regional rivals? Ultimately, is Hong Kong the leader Asia’s crypto space needs, especially at this critical juncture of the ecosystem’s growth?
Hong Kong’s New Regulatory Environment
The recent update to the regulatory framework in Hong Kong is a noteworthy development amidst an array of competing and even diametric approaches around the world.
As a trading firm with global operations, we have observed an uptick in interest in the region from abroad for months now. This is notably marked by ecosystem growth as new and innovative projects reevaluate where to best dedicate their scarce resources to cover the most accessible communities that underpin crypto’s growth.
Additionally, Auros has held conversations with some of the most prominent capital allocators in the space, who have increasingly seek out domain expertise as they expand their footprint into Asia. These players want to be well positioned to take advantage of a clear regulatory framework.
What has been most promising to note, is that Hong Kong regulators have moved swiftly to formalise and document plans every step of the way to ensure that communication around the roadmap remains clear.
This stands in stark contrast to some of its rivals that were looking to take advantage of regulatory uncertainty in the United States but failed to convert initial plans into concrete and reliable actions for projects, venture capitalists, and institutional firms.
The Implications Of HK’s Regulatory Update
While the update means that Hong Kong will provide more regulatory certainty than other jurisdictions, retail investors accessing regulated virtual asset platforms will have to deal with more extensive requirements compared to other jurisdictions, evidenced by the new requirements around asset training.
This is important for all participants to remember and understand. Regulatory clarity does not imply the formalisation of an unregulated market. It means that participants will have a clear and well-considered set of rules to follow.
This is a major step in the maturation of the industry. At first glance, this may appear restrictive to some parties, including retail participants, but will ultimately open up the ability for many institutional firms to take their first steps into the space.
This is an important development in crypto’s next phase of growth, and sophisticated liquidity providers will be well placed to act as the ‘grease in the wheels’ of innovation. Regulators and new entrants to the space will now prioritise domain expertise to understand the pitfalls and opportunities that come with financial innovation.
Some of the biggest immediate changes include the need for assets listed on regulated platforms in Hong Kong to now meet new requirements covering the safe custody of assets, segregation of client assets, and cybersecurity standards, including a minimum threshold for retail trading and compliance with IOSCO Principles for Financial Benchmarks.
These standards may seem onerous and may even lead to participants considering other regional jurisdictions (Singapore, Dubai) but in the long term, they set the groundwork for a stable system of rules that will govern proper, professional behavior whilst allowing for innovation within the guardrails.
