To: HKSFC
As HKSFC announced the "Statement on regulatory framework for virtual asset portfolios managers, fund distributors and trading platform operators" on 1st Nov 2018, a few core principles were mentioned in the "Conceptual framework for the potential regulation of virtual asset trading platform operators", which was the Appendix II of the mentioned statement, aiming to experiment regulations on cryptocurrency exchanges in a sandbox environment.
One of the core principle, precisely, principle (3) mentioned in the conceptual framework stated that any exchanges wanted to be licensed can only offer services to professional investors. It is understood that neither licensing nor participating in the sandbox programme is necessary for an exchange to operate in Hong Kong at this time, but such act
1) CREATING MARKET INEFFICIENCY AND INEQUALITY as general investors are not given equal opportunity to invest in new asset class under the protection of HKSFC licensing and regulations. This therefore discriminate their rights on getting protection under HKSFC licensing if they want to get into the market.
2) ACTIVELY PUSHING EXISTING AND POTENTIAL NEW INVESTORS AWAY FROM REGULATED LOCAL MARKET. The act of forbidding licensed and regulated exchanges to provide services for entities other than professional investors merely drives people to follow the tradition. As HKSFC starts licensing crypto-exchanges, it is foreseeable that interest in crypto-assets will again arise among general public, and forbidding exchanges to serve the public will drive these new investors to the markets mentioned rather than under the protection of HKSFC regulations, as it was already proven effective in the past.
3) CREATING UNCERTAINTY AND POTENTIAL LOST FOR INVESTORS ALREADY IN THE MARKET. There are already exchanges trying to freeze all the accounts of the investors and block them from transferring their funds away claiming to be waiting for HKSFC's review. Any exchange that wants to be licensed might need to stop providing services for a large number of customers, which may cause serious fear, uncertainty and doubt in the market and serve inconvenience for existing investors.
4) REDUCING HONG KONG'S COMPETITIVENESS ON THE CRYPTO-MARKET. Singapore, Japan and Korea have all started their crypto-regulating activity before Hong Kong and none of them has been limiting the minimum capital of exchanges' clients. A typical example is, as a regular Singapore citizen and not being an accredited or professional investor, you can buy crypto-assets from Coinbase, a US-based cryptocurrency exchange, which already has over 10 million users. Limiting exchange's clients does not only limited Hong Kong's market competitiveness, but also the image of Hong Kong's Fintech acceptancy, which will further decrease Hong Kong competitiveness in the global market.
It is known to the public that HKSFC's role is to "strengthen and protect the integrity and soundness of Hong Kong's securities and futures markets". However, even if crypto-assets are taken into account, the act of forbidding exchanges to serve entities other than professional investors is not just creating market inequality, it is actively interfering an existing and working market, even trying to remove certain general participants in it. It is completely against the role of HKSFC and I hereby urge the SFC to clarify the intentions and withdraw "serving professional investors only" as a licensing principle.