Hong Kong Regulator Sets 50% Insurance Requirement for Crypto Exchanges

Hong Kong’s Securities and Futures Commission (SFC) has mandated a minimum insurance requirement of 50% for licensed cryptocurrency exchanges handling customer assets. The move aims to enhance investor protection and risk management in the growing crypto market.

Last week, OSL Exchange disclosed the imposition of a 50% insurance coverage minimum, which applies to all assets under custody. Simultaneously, OSL announced a two-year partnership with Canopius, a syndicate of underwriter Lloyds of London, to secure an insurance policy covering 95% of its users’ assets. HashKey Exchange, another licensed virtual asset trading platform in Hong Kong, also entered a crypto insurance agreement with OneInfinity on November 16, 2023, with potential expansion to cover incidents related to server downtime, data backup, and load management.

Reports suggest that the coverage guarantees protection for user assets ranging from $50 million to $400 million. Since Hong Kong opened crypto trading to retail investors in August 2022, OSL and HashKey remain the only exchanges holding virtual asset trading licenses in the region. Currently, 13 entities are in the process of applying for such licenses, with stringent due diligence checks, including comprehensive financial audits.

License application fees are relatively low, but Web3 firms are investing substantial amounts, up to $25 million, to build applications for licenses. Expenditures primarily focus on product development and team-building, with traditional financial entities, unfamiliar with crypto, starting from scratch in this evolving landscape.

This move by the SFC reflects the increasing importance of regulatory oversight in the cryptocurrency space, aiming to establish a secure and transparent environment for investors and market participants. As the crypto market continues to evolve, regulatory measures are likely to play a crucial role in shaping its future.

Digital Assets Desk