On May 23, the Securities and Futures Commission (SFC) of Hong Kong released its finalized regulatory framework following public consultation, setting June 1, 2025, as the official implementation date. This marks a pivotal moment in Hong Kong’s ambition to become a regulated hub for virtual asset trading in Asia. The new rules clarify key aspects of investor protection, platform obligations, and permissible trading activities—particularly for retail investors.
The updated framework introduces comprehensive requirements for licensed virtual asset trading platforms (VATPs), emphasizing transparency, security, and responsible trading practices. While opening the door to broader retail participation, the SFC has taken a cautious stance on certain high-risk products like stablecoins and lending services.
👉 Discover how the new crypto rules impact your investment strategy in Asia’s financial hub.
Can Retail Investors Use Licensed Crypto Exchanges?
Yes—retail investors will be allowed to access licensed virtual asset platforms starting June 1, provided these platforms comply with strict investor protection measures. These include robust client onboarding procedures, governance standards, disclosure obligations, and thorough token due diligence before listing.
This shift signifies Hong Kong’s intent to balance innovation with risk mitigation. By permitting retail access under controlled conditions, the SFC aims to foster market growth while safeguarding less experienced investors from excessive exposure.
Must Exchanges Verify Investor Knowledge?
Absolutely. All licensed platforms must ensure that both retail and professional investors possess sufficient understanding of virtual assets. This "fit and proper" assessment is part of the Know Your Customer (KYC) process and helps prevent uninformed participation in volatile markets.
Exchanges are expected to implement educational materials, knowledge quizzes, or risk assessments to confirm user comprehension before granting trading access.
Are There Investment Limits for Retail Users?
No fixed limits are mandated by the SFC. Instead, the responsibility falls on individual platforms to determine appropriate risk thresholds based on customer profiles gathered during KYC. The regulator believes exchange operators are better positioned than regulators to assess user capacity and set personalized trading caps.
This approach allows flexibility but places greater accountability on exchanges to act prudently and avoid encouraging overexposure.
Do Exchanges Have Disclosure Obligations?
Yes. Despite challenges in verifying information from token issuers, licensed platforms must exercise due skill, care, and diligence when evaluating assets for listing. They are required to take all reasonable steps to obtain accurate data about each virtual asset.
Notably, the SFC emphasizes that no exemption applies just because another licensed exchange has already listed a token. Each platform must conduct its own independent due diligence.
“Even if a token is listed elsewhere, it does not relieve your responsibility,” the SFC stated.
Should Smart Contracts Be Audited?
While not strictly mandatory, the SFC strongly encourages licensed exchanges to engage independent experts to audit smart contracts. Platforms may also rely on third-party audits conducted by issuers—provided they are performed by credible, independent firms.
This expectation aims to reduce technical risks such as bugs, vulnerabilities, or exploits that could lead to investor losses.
Which Tokens Can Be Listed for Retail Trading?
To qualify for retail trading, tokens must meet stringent criteria designed to minimize manipulation risks and ensure market integrity:
- Resilience to market manipulation: Assets should have sufficient liquidity and transparent trading history.
- Index inclusion requirement: Tokens must be part of at least two recognized indices provided by independent index vendors.
- High liquidity: Market capitalization alone isn’t enough; active trading volume is essential.
These standards aim to restrict access to only the most established and transparent digital assets—excluding speculative or low-volume tokens from retail availability.
👉 See which major cryptocurrencies are likely to meet Hong Kong’s strict listing criteria.
Are Stablecoins Allowed for Retail Trading?
No. The SFC has explicitly barred licensed platforms from offering stablecoin trading to retail investors—at least for now.
The regulator cites concerns over whether certain stablecoins can reliably maintain their peg or honor redemption requests during market stress. Given past collapses like UST, the SFC views unregulated stablecoins as posing unacceptable risks.
“Stablecoins that fail to maintain their peg or redeem investor funds cannot be considered stable,” the SFC noted.
A dedicated regulatory regime for stablecoins is expected by 2025, after which they may be reconsidered for retail access.
Can Exchanges Offer Derivatives?
Not yet. The SFC acknowledges the importance of virtual asset derivatives for institutional clients but has deferred decisions on retail derivatives trading. It will review feedback from stakeholders and conduct further assessment before making a final determination.
This cautious approach reflects ongoing concerns about leverage, volatility, and potential misuse in derivatives markets.
What Are the Custody and Insurance Requirements?
Licensed platforms must implement strong safeguards for client assets:
- Full compensation coverage: All client virtual assets—whether hot or cold wallet stored—must be covered under a compensation arrangement.
- Cold storage preference: At least 98% of client funds should be held offline. However, the SFC is considering lowering this threshold to 50%, aligning more closely with traditional financial safeguards.
- Segregation of assets: Client funds must be kept separate from operational funds and managed in trust.
- Independent insurance: Insurance pools must be independently managed to avoid conflicts of interest.
These measures aim to prevent another FTX-style collapse where customer assets were misused or lost.
Is Proprietary Trading Banned?
Yes. The SFC prohibits licensed exchanges from engaging in proprietary trading or holding any virtual asset positions themselves. This includes affiliates within the same corporate group.
However, third-party market makers are permitted to provide liquidity—an arrangement intended to maintain healthy order books without creating conflicts of interest.
Are Algorithmic Trading Systems Permitted?
Yes. Licensed platforms may offer algorithmic trading tools and APIs, enabling advanced trading strategies as long as they comply with fair access and market abuse prevention rules.
Are Lending and Yield-Bearing Products Allowed?
No. Services involving deposits, interest-bearing accounts, or crypto lending are currently prohibited for licensed VATPs.
The SFC explains that such activities go beyond the core function of being an execution-only broker and introduce complex risks—including credit risk, maturity mismatch, and opacity in fund usage.
“Any activity beyond matching buy-sell orders may create conflicts of interest,” the SFC warned.
Frequently Asked Questions (FAQ)
Q: When does Hong Kong’s new crypto regulation take effect?
A: The licensing regime officially takes effect on June 1, 2025.
Q: Can I trade any cryptocurrency I want on a licensed Hong Kong exchange?
A: No. Only tokens meeting strict criteria—such as index inclusion and resistance to manipulation—will be available for retail trading.
Q: Why are stablecoins banned for retail investors?
A: Due to risks around peg stability and redemption failures, especially highlighted by past crashes like UST.
Q: Are my crypto assets safe on a licensed Hong Kong platform?
A: Yes. Platforms must fully compensate users for lost assets, keep funds segregated, and store most in cold wallets.
Q: Can I earn interest on my crypto holdings in Hong Kong?
A: Not through licensed exchanges. Lending and yield-generating products are currently prohibited.
Q: Will futures or leveraged products ever be allowed?
A: The SFC is reviewing derivatives but has not approved them for retail yet. Institutional use remains under consideration.
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