Hong Kong has revealed proposals to permit ordinary investors to trade specific digital currencies on authorized exchanges as part of an effort to recover its status as a major worldwide hub for cryptocurrencies.

The Securities and Futures Commission (SFC) of Hong Kong released a consultation paper on its proposed regulatory framework for cryptocurrency trading platforms on Monday. Beginning in June, the new regulations will go into effect and mandate SFC licencing for all crypto platforms.

The regulator added that provided protections including knowledge exams, risk profiles, and acceptable exposure limitations are in place, ordinary investors will be permitted to trade certain “large-cap tokens” on authorized exchanges.

The agency omitted making a list of the large-cap tokens that would be accepted. The two biggest cryptocurrencies by market cap, Bitcoin and Ethereum, were reportedly going to be made available to retail users, according to a report by the Financial Times.

Also, the SFC proposed standards for determining which cryptocurrencies would be accessible for trade. The team behind a token, marketing materials, legal risks, and determining “how robust it [the token’s network] is to typical attacks” would be the responsibility of exchanges. Also, the token ought to have a high market capitalization.

Tokens that are “included in at least two ‘approved indices’ issued by at least two independent index providers,” one of whom should have experience in the traditional financial industry, are considered large-cap virtual assets, according to the agency.

It is important to note that cryptocurrency exchanges are required to keep no more than 2% of their customer assets in “hot wallets,” which are an online-accessible sort of wallet. This is due to the fact that digital wallets are more susceptible to phishing attacks.

Hong Kong Changes Stance as Crypto Landscape Improves

In 2018, the SFC first unveiled its framework for regulating cryptocurrency, which forbade trading by retail investors. Nonetheless, the SFC said that since it first introduced the regulatory framework, the “virtual asset world has altered dramatically.”

It is noteworthy that the Hong Kong government has already given individual investors access to exchange-traded funds (ETFs) that invest in Bitcoin and Ether futures offered by CME Group (CME).

Meanwhile, earlier this month Hong Kong raised $102 million in digital green bonds. The sale was the first government-issued tokenized green bond, demonstrating the government’s forward-thinking position on blockchain and DLT.

Yet, Hong Kong’s decision contrasts sharply with mainland China’s ban on all forms of cryptocurrency-related transactions. Some of the Chinese-founded Web3 companies in exile may look to Hong Kong for Chinese tech expertise as a result of the city’s implementation of a more crypto-friendly regulatory environment.

With growing anxiety over Hong Kong’s legislative ambiguity on cryptocurrency and the development of possible rivals like Singapore and Dubai, which are seen as more welcoming to the industry, Hong Kong, long the world’s crypto hub, began to lose its status in mid-2022.

Padraig Walsh, a partner at the Hong Kong law firm Tanner De Witt, stated back in September that “there was a point in time where Hong Kong had a leadership position in cryptocurrencies and business relating to crypto.” “That’s not the case anymore, and I believe regulation has played a significant role in why.”