The Securities and Futures Commission of Hong Kong (SFC) has introduced new policies for insurance coverage offered by cryptocurrency exchanges. As per the new requirements, the minimum coverage requirements for insurance warranties are set at 50%.
New Policies for Regulated Crypto Exchanges
The new policy is applicable to all regulated cryptocurrency exchanges operating within Hong Kong. To this end, OSL Exchange a virtual asset trading platform operating out of Hong Kong has reported that it signed a 2-year deal with underwriting firm Canopius.
Canopius is part of the Lloyd’s of London a leading insurance syndicate operating in 200 jurisdictions around the globe. The business venture is set to offer an insurance coverage policy that covers around 95% of the user assets. HashKey Exchange is another certified VATP (virtual asset trading platform) that is currently operational in Hong Kong.
The platform started an insurance agreement with OneInfinity on 16th November, 2023. This insurance policy covers various incidents such as server downtime, load management, data back-up etc.
Only Two Licensed Trading Platforms Operate in Hong Kong
OSL and HashKey are the only two cryptocurrency trading platforms that are operational in Hong Kong. The SFC introduced a new policy to allow retail investors to access cryptocurrency trading products directly since last year in August.
Thus far, around 13 VATPs have applied for registration with SFC till date. The regulators have mandated strict due diligence checks such as comprehensive financial audits as prerequisites for these licensing attempts.
This type of check supersedes proof-of-reserves in terms of traditional audit requirements. At the same time, it does not seem that the regulators have made the licensing process difficult on purpose. It is visible on account of a few hundred dollars in licensing fees.
However, Web 3.0 firms may dedicate a budget of up to $25 million to tailor their application in accordance with the licensing guidelines. The biggest overhead for crypto firms is from product development and human capital that are starting from ground zero.
Hong Kong Regulators to Regulate Stablecoins
The Monetary Authority of Hong Kong (HKMA) has introduced a cryptocurrency regulatory framework aimed at fiat-referenced stablecoins (FRS). On this account, HKMA has published a consultation paper in association with the Financial Services and Treasury Bureau.
The proposed document requires stablecoin issued to actively market FRS tokens that are to be licensed under HKMA. At the same time, HKMA has set the stablecoin licensing criteria to fully back all stablecoin in circulation to be fully backed with 100% of its face value.
Furthermore, stablecoin issuers are also to ensure segregated backing reserve accounts, regular disclosures, and reporting as part of the licensing terms. This document also indicates that algorithmic stablecoins may not apply for or qualify for a license.
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