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Digital currency exchanges in Hong Kong will be obliged to apply for a license prior to offering services to local crypto traders if a newly proposed bill is passed.
The new bill will also limit the distribution of digital currency services to qualified investors. The condition to restrict services to professional investors has led to controversy.
Hong Kong has been one of the first countries to adopt digital currencies. The city-state has some of the prominent cryptocurrency entities, ranging from exchanges like Crypto.com all the way to the embattled BitMEX and controversial projects like the stablecoin Tether.
For quite some time, the country’s laws have provided relaxation to digital asset trading. However, the government is now working to bring about change with the newly proposed amendments to its financial laws.
In a recently issued discussion paper, the Hong Kong government stated its proposals “to enhance the regulatory regime for combating money laundering and terrorist financing (“ML/TF”).”
According to the discussion paper, this will fulfill the Financial Action Task Force (FATF) obligations for the state. One of the conditions in the proposed bill is to launch a licensing regime for virtual asset service providers (VASPs).
Understanding the quick rise in the popularity of digital currencies, the paper states that they increase the risk of money laundering due to the anonymity and decentralization they provide (although Bitcoin is not anonymous).
The proposed licensing regime will oblige all VASPs operating locally or having a permanent business place in Hong Kong and offer any kind of service that includes virtual assets, which the paper describes as “a digital representation of value that is expressed as a unit of account or a store of economic value; functions (or is intended to function) as a medium of exchange accepted by the public as payment for goods or services or for the discharge of a debt, or for investment purposes; and can be transferred, stored or traded electronically.”
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