Hong Kong’s Virtual Asset Service Provider (VASP) standards are set “incredibly high” as the Securities and Futures Commission (SFC) expects the crypto industry to meet the same compliance standards as traditional financial firms.
Speaking to Cointelegraph at the WOW Summit in Hong Kong, Lucy Gazmararian, founder of crypto venture capital firm Token Bay Capital and member of the SFC’s fintech advisory panel, explained that while the “barrier to entry is high,” there are “good reasons” for it . "
"The standards are very high because [SFC's] approach is to require VASPs to apply the same standards that existing financial institutions such as large banks and large asset managers must adhere to." The SFC published a consultation paper on 20 February that considered whether licensed VASPs should serve retail investors and what standard investor protection measures should be in place.
Anti-money laundering and know-your-customer policies are also discussed. Gazmararian said these high standards could pose challenges to Hong Kong’s crypto industry in the short term. “The problem is that crypto businesses are usually in the startup phase,” she explained. "A lot of people have money, but it's not a lot, not hundreds of millions."
“Compliance with the framework does incur significant costs,” she added, noting that local VASPs are required to have insurance, independent assessment reports and store cryptocurrencies in cold storage. With a solid regulatory framework in place, Gazmararian believes more well-capitalized financial firms will be willing to help promising startups get off the ground.
“I think companies that are licensed will hold to the strictest standards, so the bar is set high, but I think there are good reasons for that,” Gazmararian said. The SEC encourages individuals, businesses, and cryptocurrency firms to review and provide feedback on the 361-page consultation paper.
Gazmararian explained that securities regulators want these entities to share their views and point out things that may have been missed because they are "absolutely focused" on getting everything right. Feedback on the exposure draft closes March 31.
