Report says officials from China’s Liaison Office have been spotted at crypto events in the city.

As Hong Kong prepares for a consultation process that might eventually legalize a form of retail crypto trading in the territory, Bloomberg reports that The mainland government in Beijing might be subtly endorsing the idea.

According to Bloomberg, officials from China’s Liaison Office have been frequent guests at crypto gatherings in Hong Kong. The tone of their visits and follow-up calls with certain projects has been friendly.

Some stakeholders think that this can be seen as an endorsement of Hong Kong’s push to become a crypto hub, with the Special Administrative Region of China using its separate legal system and markets to be a testing ground – much in the same way as Hong Kong was China’s first test of open markets in the 20th century.

“As long as one doesn’t violate the bottom line, to not threaten financial stability in China, Hong Kong is free to explore its own pursuit under ‘One Country, Two Systems,’” Bloomberg quotes Nick Chan, a National People’s Congress member and a crypto lawyer, as saying.

On Monday, Hong Kong’s Securities and Futures Commission (SFC) made its first push to open the door to retail crypto trading, beginning a consultation process for Virtual Asset Service Providers (VASPs) seeking a license to provide trading services for retail.

Some of the requirements the SFC proposes involve a due diligence process on tokens prior to listing, which would see only pre-approved tokens available to traders, as well as setting up a risk profile for clients to ensure their exposure is “reasonable.”

The SFC has just concluded a multi-year consultation process that will see exchanges being allowed to serve professional investors (defined as those with a net worth of over $1 million) on June 1.

It’s not known when the SFC will finish its consultation process on allowing retail investors access.

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Virtual asset service providers will be covered by terror financing and anti-money laundering rules as of June 2023.

Hong Kong is to subject crypto providers to the same anti-money laundering and counter-terrorist financing laws that it does traditional finance firms.

The territory’s Legislative Council voted to add virtual asset service providers (VASPs) to the Anti-Money Laundering and Counter Terrorist Financing Ordinance as of June 1, 2023, according to a Dec. 5 amendment to the law.

The fallout from the collapse of FTX, which was once based in Hong Kong, before departing for Bahamas in September last year, casts doubt over what crypto-friendly ambitions Hong Kong may now have. Prior to the exchange’s failure early November, the territory showed signs of relaxing its tough regulations and becoming a more crypto-friendly environment. The Financial Services and Treasury Bureau said at end-October that it was open to allowing retail customers to trade crypto or approving a virtual assets exchange-traded fund (ETF).

Last month, however, Julia Leung, the deputy CEO of the Securities and Futures Commission, called for tough rules to be implemented on crypto firms, saying that recent events had highlighted the volatility of the industry and the threats posed by its links with traditional financial services.

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Alder leaves a legacy of mixed crypto regulations in Hong Kong that saw crypto exchange FTX depart the city and retail investors largely excluded.

Ashley Alder, the CEO of Hong Kong’s Securities and Futures Commission (SFC), has been appointed to head the U.K.’s Financial Conduct Authority (FCA) and is expected to start in January 2023.
Alder, a former lawyer, has been the head of the SFC since October 2011, overseeing the introduction of the territory’s digital assets rules.

He will become chair of the FCA, working with CEO Nikhil Rathi. The FCA became the U.K.’s authority for anti-money laundering and countering the financing of terrorism in 2020, bringing crypto companies within its remit.

While Hong Kong was considered one of the world’s freest economies for traditional finance, the same can’t be said for crypto.

Industry stakeholders that have previously spoken to CoinDesk are wary about the city’s long-term potential with China’s growing influence.

In addition, strict licensing rules for Virtual Asset Service Providers (VASP) in Hong Kong would exclude all retail investors from the asset class.

Crypto executives in the industry have complained about these rules, and the difficulty in working with the SFC and Hong Kong’s other financial regulators on digital assets.

Last summer FTX moved its headquarters out of Hong Kong citing unfavorable regulations and COVID-19 quarantine requirements.

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