Hong Kong is preparing to introduce a new regime for virtual asset regulation as the Securities and Futures Commission (SFC) published the conclusions of a weeks-long consultation on regulatory guidelines for crypto platforms on May 23. From June 1, Hong Kong crypto exchanges must seek licenses under the Securities and Futures Ordinance (SFO) and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). The SFC will publish the forms on May 25 and start receiving applications when the new guidelines come into effect. Currently, there are no licensed crypto platforms for retail investors in Hong Kong.
The guidelines require crypto platforms to employ at least two “responsible officers” (RO) for each type of license held. Therefore, a crypto platform licensed under SFO and AMLO would need to hire four ROs. ROs are a part of top management and must be licensed by the SFC and approved as an RO of an exchange. They must have extensive experience in order to become licensed. With the crypto industry being relatively new, there are not many executives with crypto and blockchain expertise. Hong Kong has 18,000 licensed ROs, but only 95 hold the Type 7 license required to provide automated trading services that crypto exchanges need.
The Shortage of Responsible Officers in Hong Kong
The lack of ROs has become a concern for crypto exchanges, as they compete for new licenses. According to Lily King, the Chief Operating Officer of Cobo, a digital-asset custodian that is applying for a Hong Kong license, ROs have become the “hardest position to fill in Hong Kong”. In fact, it could take up to five months to fill a RO position. The SFC has revised its requirements so that crypto exchanges that are dually licensed need to employ only two ROs instead of the previous requirement of four.
To become an RO, an individual needs to have years of management experience and relevant experience in the field or product they want a license in. ROs are responsible for ensuring that their firms comply with all the rules and regulatory requirements. If their firms fail to comply, ROs can be subject to civil and criminal penalties. In view of the talent crunch, the SFC has adopted a pragmatic approach and has relaxed its requirements.
As there is a shortage of talent with both virtual asset and traditional securities experience, the SFC is prepared to adopt a pragmatic approach. Crypto exchanges are trying to work with ROs in traditional finance, but such individuals are generally reluctant to change their career tracks to crypto, which is viewed as riskier. They need more incentives to switch sides. With the ongoing shortage, RO has become a lucrative position in Hong Kong. The limited number of ROs that have blockchain and crypto experience are paid up to 20% more compared to those in traditional finance. In fact, the highest RO salaries in Hong Kong have crossed $19,000 per month.
Hong Kong is implementing new regulations for crypto platforms that require crypto exchanges to employ at least two responsible officers for each type of license held. However, there is a shortage of responsible officers with both virtual asset and traditional securities experience, which has become a matter of concern for crypto exchanges. The SFC has adopted a pragmatic approach and has relaxed its requirements so that crypto exchanges that are dually licensed need to employ only two ROs instead of the previous requirement of four. Crypto exchanges are trying to work with ROs in traditional finance, but such individuals are generally reluctant to change their career tracks to crypto, which is viewed as riskier. They need more incentives to switch sides.