OSL leaps on new Hong Kong rules with crypto exchange licence bid (updated)

OSL

07/11/2019 14:14

(Adds context analyst quotes)
    By Alun John
    HONG KONG, Nov 7 (Reuters) - Hong Kong-based OSL, part of BC
Group  0863.HK , said on Thursday it had become the first
cryptocurrency firm to apply for a digital asset exchange
licence from the Securities & Futures Commission (SFC).
    Hong Kong hosts dozens of cryptocurrency exchanges,
including some of the world's largest, and the SFC on Wednesday
published new rules, among the first of their kind, that allow
exchanges to opt into regulation. Market participants said few
others are expected to follow OSL's lead, however.  urn:newsml:reuters.com:*:nL3N27M1OH 
    Market watchdogs worldwide have been debating whether and
how they should regulate the cryptocurrency industry, with many
chosing initially to focus on investor protection concerns.  
    The new rules stipulate, among other requirements, that a
licenced exchange must provide services to professional
investors only, have an insurance policy to protect clients in
case assets are lost or stolen, and carry out due diligence into
the cryptocurrencies traded on their exchanges.
    "We congratulate the SFC on announcing its digital asset
licensing regime and are proud to be the first applicant," said
Wayne Trench, chief executive of OSL, which provides digital
asset brokerage, exchange and custody services for institutions
and professional investors. 
    Many other exchanges in Hong Kong said they welcomed the
rules, but few are expected to apply. 
    "We believe that a handful of exchanges will take the
invitation to opt-in into SFC’s regulation plan, however, we do
not expect to see a large number of exchanges rushing into the
regulation net," said OKEX, one of the world's largest
exchanges, said in a note. 
    OKEX, which has a significant presence in Hong Kong,
nontheless described the rules as "a positive move for the
overall cryptocurrency industry". 
    Some hedge funds and family offices trade cryptocurrencies
but retail investors make up the bulk of trading at most large
exchanges. 
    "This framework is in a space where big exchanges will find
it difficult to comply without losing too much of their business
- a major strategic decision to take -  while many smaller
exchanges will find it difficult to comply from a practical
persepctive," said Hoi Tak Leung, counsel at law firm Ashurst.  
    There are approximately 3,000 cryptocurrencies in the world
with a total market cap of $200 billion-$300 billion according
to estimates from industry data provider CoinMarketCap. These
can be traded on over 200 cryptoexchanges.  
    Ashley Alder, the SFC's chief executive, said in a speech on
Wednesday that the SFC could not regulate all cryptocurrencies
and cryptocurrency exchanges without new legislation, as bitcoin
for example, did not count as a security under current rules. 
    Instead the SFC proposed that exchanges can opt into
regulation by allowing trading of at least one security on their
platform. 

 (Reporting by Alun John;
Editing by Alexander Smith)
 ((Alun.John@thomsonreuters.com; +852-28415827;))