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Banning retail crypto traders in Hong Kong could push them to use unregulated platforms

Hong Kong's crypto exchanges warn that the government's proposal to limit crypto trading only to professional investors could backfire.

Image by: Wikipedia Commons

Tue, 16 Feb 2021, 16:07 pm UTC

Players in Hong Kong’s crypto industry have been trying to push back against the proposal to ban retail investors from cryptocurrency trading. If such restriction is in place, it would lock out around 93 percent of the city’s residents from the digital currency market.

However, crypto exchanges argue that the proposal could backfire. By restricting trading activities to professional investors, it could push retail traders to opt for unregulated platforms, according to Cointelegraph.

The proposal to limit crypto trading to professional investors was published by Hong Kong’s Financial Services and the Treasury Bureau in November 2020, South China Morning Post reported. After wrapping up consultations with the public and industry bodies in January, the government is planning to turn it into a bill and present it to the legislative council within this year.

Industry body Global Digital Finance is opposed to the proposal and warned that it could push retail investors to transact with unregulated platforms, which are out of reach of the law. Global Digital Finance is composed of Hong Kong’s crypto exchanges such as Coinbase, OKCoin, BitMEX, and Huobi.

The proposal is part of Hong Kong’s efforts to widen the scope of the city’s anti-money-laundering and counterterrorist financing regulations and align them with Financial Action Task Force (FATF) regulations. However, many argue that the city’s proposal to limit crypto trading only to professional investors exceeds the requirements of the FATF's framework and has been likened to that of mainland China’s tough stance on digital currency trading.

.“Restricting cryptocurrency trading to professional investors only is different to what we have seen in other jurisdictions such as Singapore, the UK, and the US, where retail investors can buy and sell virtual assets,” Global Digital Finance’s Advisory Council chair Malcolm Wright said. The three countries mentioned are FATF members.

An individual professional investor is defined as having a portfolio of at least HK$8 million or around US$1.03 million. However, a Citibank survey released in September 2020 revealed that 504,000 people, or around 7 percent of Hong Kong’s population have net assets of at least HK$10 million (US$1.3 million).

According to SCMP’s estimates, this could mean that roughly 93 percent of the city’s population won’t make the cut as professional investors and won’t be allowed to trade in crypto should the proposal push through. Write said that these retail investors might opt to trade on overseas exchanges or unlicensed platforms, which could expose them to risks.

The Bitcoin Association of Hong Kong also questioned why retail investors in crypto are treated differently from retail investors dealing in precious metals or foreign currency. “Any barrier put in place to restrict the sale or purchase of bitcoin needs to be reasonable and well justified. Individuals … need to be able to use and accept bitcoin as payment,” the association said.

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