The Hong Kong Stock Exchange building Photo: VCG

Hong Kong has launched a consultation on the proposals for operators of virtual asset trading platforms (VATPs), and it is "seeking views particularly on whether to allow licensed platform operators to serve retail investors," the Securities and Futures Commission (SFC) said in a statement sent to the Global Times on Tuesday.

The consultation will end on March 31, paving the way for the new licensing regime for crypto exchanges, which could allow retail investors to access trading of large-capitalization crypto. The new system will come into effect on June 1.

Industry insiders expect two digital tokens, Bitcoin and Ethereum, two of the world's largest virtual assets (VA) in terms of market value, could be allowed to list on local retail trade platforms.

Observers said the consultation is a significant move by Hong Kong to encourage the regulated development of virtual assets and build itself into a globally competitive crypto hub on par with Singapore and Dubai.

In late October, Hong Kong published a policy paper that clearly showed an encouraging attitude toward fostering sustainable development of the local virtual assets sector. 

The local authorities stressed that guardrails will be put in place to properly manage investors' interests and fend off financial risks, on the heels of the recent market volatility and the collapse of leading crypto trading platforms such as FTX. 

"If [retail trading is allowed], the measures will be implemented in addition to the proposed range of robust investor protection measures, which include ensuring suitability in onboarding clients and token admission," the SFC said.

In October 2022, the SFC put in place a regime for the authorization of virtual asset futures exchange-traded funds (ETF), under which three virtual assets futures ETFs have been listed to date. Retail investors thus have indirect access to VAs through those ETFs.

So far, only two crypto trading platforms -- OSL Digital Securities and Hash Blockchain -- have been approved by the SFC to operate in Hong Kong, the Securities Times reported. 

The SFC said in a press release that operators of VA trading platforms that plan to apply for a license, including pre-existing platforms, should begin to review and revise their systems and controls to prepare for the new regime. 

Those that don't plan to seek a license should prepare for an orderly closure of their businesses in Hong Kong.

Sebastian Paredes, CEO of DBS Bank (Hong Kong), said in a statement sent to the Global Times that "at the appropriate time, DBS will apply for the necessary licenses in Hong Kong to avail our digital asset solutions to the market."

Paredes said the bank has always taken a prudent and measured approach toward "growing our digital asset ecosystem, choosing to keep pace with the market as it matures and as investors become more sophisticated."

Brian Armstrong, co-founder and CEO of leading crypto trading platform Coinbase, welcomed the move on Twitter. He questioned the unclear US regulatory environment on crypto business and warned that the US risks "losing its status as a financial hub in the long term."

Wang Peng, an assistant professor at the Gaoling School of Artificial Intelligence at the Renmin University of China, told the Global Times on Tuesday that Hong Kong is "seizing the window of opportunity" and leveraging its traditional advantages to consolidate its role as an Asian financial hub. 

In recent years, Singapore has become a magnet for crypto start-ups, and Hong Kong's clear-cut policy direction would help attract crypto-related innovation and accelerate the catch-up process, Wang said.