Hong Kong SFC eases requirements as exchanges face crypto talent crunch

Hong Kong is gearing up to usher in a new regime for virtual asset regulation. The Securities and Futures Commission (SFC) published the conclusions from its weeks-long consultation on regulatory guidelines for crypto platforms on May 23.

Hong Kong crypto exchanges will have to seek licenses under the Securities and Futures Ordinance (SFO) and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). The SFC will gazette the forms on May 25 and start accepting applications on June 1, when the guidelines come into force. As of now, Hong Kong does not have any licensed crypto platform for retail investors.

The regulations impose various requirements on crypto platforms. Under the guidelines, crypto platforms need to employ at least two “responsible officers” (RO) for each type of license it holds. So a crypto platform licensed under SFO and AMLO would need to hire four ROs.

Responsible officers are part of the top management and need to be licensed by the SFC and approved as a RO of an exchange. ROs also need extensive experience in order to become licensed.

With crypto being a comparatively new field, not many executives have crypto and blockchain expertise. There are around 18,000 licensed ROs in Hong Kong, but only 95 hold the Type 7 license for providing automated trading services that crypto exchanges are looking for.

There is an evident lack of ROs, which has become a matter of concern for crypto exchanges vying for new licenses. In fact, Lily King, chief operating officer of Cobo, a digital-asset custodian applying for a Hong Kong license, told Bloomberg that ROs have become the “hardest position to fill in Hong Kong.” The report noted that it could take up to five months to fill a RO position.

In view of the talent crunch, the SFC revised the requirements so that crypto exchanges that are dually licensed need to employ only two ROs instead of the previously prescribed four. The SFC noted:

“As there may be a lack of talent with both virtual asset and traditional securities experience, we are prepared to adopt a pragmatic approach…”

A lucrative position in Hong Kong

To become a RO, an individual needs to have years of management experience along with relevant experience in the field or product they want a license in. A responsible officer, as the name of the position suggests, is in charge of ensuring that their firms comply with all the rules and regulatory requirements. And if their firms fail to comply, ROs can be subject to civil and criminal penalties.

With the shortage of ROs, 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. Therefore, they need more incentives to switch sides, King told Bloomberg.

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, as per the Bloomberg report. In fact, the highest RO salaries in Hong Kong have crossed $19,000 per month, as per the report.