Hong Kong is home to dozens of crypto exchanges, including some of the world’s biggest. Photo: iStock

Hong Kong plans to abandon its opt-in approach and regulate all crypto trading platforms operating in the financial hub, the city’s markets watchdog announced on Tuesday.

Japan and Singapore already have licensing regimes that require all crypto trading platforms to be regulated.

Hong Kong’s Securities and Futures Commission (SFC) launched a regulatory framework specifically for cryptocurrency trading platforms last year, but this was restricted to platforms that traded an asset officially classed as a security or future, not just tokens like bitcoin, Reuters reports.

“This is a significant limitation, as under the current legislative framework if a platform operator is really determined to operate completely off the regulatory radar it can do so simply by ensuring that its traded crypto assets are not within the legal definition of a security,” Ashley Alder, chief executive of the SFC, said in a speech on Tuesday.

Consequently, the Hong Kong government is proposing a new licensing regime under its anti-money laundering legislation, requiring all cryptocurrency trading platforms that operate there, or target investors in the city, to apply for an SFC licence, Alder said.

Hong Kong is home to dozens of crypto exchanges, including some of the world’s biggest, but many have not applied for a licence under the existing regime.

The move to tighten regulation follows several scandals, including the indictment of senior executives at BitMEX, which at one time during the bull market of 2017 and 2018 used to run the world’s biggest crypto-exchange at the Cheung Kong Center, one of the most expensive office towers in the city. Its founder and former CEO, Arthur Hayes, was among the executives indicted in October by US courts for failing to comply with US anti-money-laundering requirements and thereby violating the Bank Secrecy Act. Hayes, who according to public records has a residential address in Hong Kong, has been named as a defendant in other ongoing lawsuits in the US alleging his involvement in market manipulation and money laundering, the South China Morning Post reports.

Also in October, OKEx, a Malta-based crypto-exchange with operations in Hong Kong, disclosed that it had to suspend all its customers’ cryptocurrency withdrawals. The suspension came after the exchange’s founder, Xu Mingxing – also known as Star – who reportedly holds the private key to clients’ crypto assets, had been absent from work and was reportedly under investigation by mainland Chinese police.