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Crypto retail trading ban in Hong Kong

Hong Kong’s financial regulator has proposed restrictions on cryptocurrency exchanges in the territory.
Mining rig for cryptocurrency

All virtual asset exchanges should be licensed if they want to operate in Hong Kong, the territory’s Financial Services and the Treasury Bureau (FSTB) said on Friday, after concluding a consultation that started in November last year.

In addition, it proposed that they should only be allowed to provide services to professional investors, that is individuals with at least HK$8m ($1.03m) of investible assets.

The announcement came after a roller-coaster week for cryptocurrencies, such as bitcoin and ether.

The price of bitcoin collapsed after a series of tweets last week by Tesla chief Executive Elon Musk, who said that the company would not accept the digital currency, just two months after saying he would take bitcoin as payment for Tesla’s cars.

Bitcoin’ price has slumped 48% from the year’s high of $64,895.22 on 14 April, according to Coinbase.

Musk had pointed to the massive amounts of energy required to “mine” bitcoin, which is generated by computers solving complex mathematical problems. Although no actual coins are minted, the technology involved uses huge amounts of electricity, which in turn burns large quantities of fossil fuels. 

Meanwhile, China is cracking down on bitcoin mining and trading as part of ongoing efforts to prevent speculative and financial risks. Onn Tuesday it announced a stricter ban on banks and payment companies offering crypto-related services

In the United States too, regulators have acted to constrain cryptocurrencies. The US Treasury issued a report last Thursday describing new compliance proposals from President Joe Biden, including mandatory tax reporting for transactions of $10,000 or more for bitcoin and other cryptocurrencies.

There are several cryptocurrency exchanges operating in Hong Kong, which have benefitted from a relatively permissive regime, that means they can voluntarily apply to be licenced by the Securities and Futures Commission (SFC), the financial markets regulator.

Local financial technology and crypto industry associations have opposed regulation stopping exchanges from offering services to retail investors, warning this could drive exchanges out of Hong Kong.

In Singapore, for example, cryptocurrency exchanges must be licenced, but can have retail investors as clients.

The FSTB said it intends to suggest turning its proposals into law in the upcoming 2021-22 session of the city’s legislative assembly.

Scam warning

Separately, the SFC has concluded an online campaign which simulated the experience of being drawn into an investment scam. The campaign is part of the SFC’s efforts to alert the public about the use of online platforms to defraud investors.

“Online investment scams may involve stock market manipulation and those who get caught up in them can suffer substantial losses,” said Ashley Alder, the SFC’s chief executive officer, in a statement on Monday.

Web banners featuring language commonly used to lure potential victims to join scam-related chat groups were posted on local discussion forums, mobile investment applications and financial news websites over a three-week period in April.

The banners targeted web users with an interest in stock trading and other investments, according to the statement.

Viewers who clicked on the banners were directed to a webpage in Chinese where the SFC warned that unsolicited offers of stock tips and other investment advice are often signs of “ramp and dump scams”.

The data, which was apparently collected on an anonymous basis, indicated that of the more than 24,000 viewers who clicked on the banners in the online campaign, about 50% were under 35 years old.

“Younger people may be more vulnerable to these scams. Less experienced investors are urged to carefully consider and verify the information they read online before they invest,” warned the SFC

In recent months, the SFC has warned the public about online scams in media interviews and its official Facebook page.

Part of the Mark Allen Group.