Hong Kong Sets 50% Insurance Mandate for Crypto Exchanges

Hong Kong’s Securities and Futures Commission (SFC) recently introduced a new regulation that requires all licensed crypto exchanges in Hong Kong to insure at least 50% of their clients’ assets. The move aims to improve the security and reliability of these platforms, especially in the event of a security breach or insolvency. OSL Exchange and HashKey Exchange, two prominent licensed virtual asset trading platforms in Hong Kong, have responded proactively to this mandate.

OSL Exchange has entered into a two-year partnership with Canopius, a syndicate of insurer Lloyds of London, to provide an insurance policy that covers a remarkable 95% of users’ assets. This level of coverage significantly exceeds the minimum requirement set by the SFC. Similarly, HashKey Exchange signed an agreement with OneInfinity to provide insurance coverage for up to $400 million worth of users’ assets. This coverage could potentially be expanded in the future to include incidents such as server downtime and data backup issues.

These measures are part of Hong Kong’s broader efforts to regulate the cryptocurrency industry. Since the opening of crypto trading to retail investors in the region last August, OSL and HashKey have been the only exchanges to receive licenses to trade virtual assets. Thirteen enterprises are currently in the process of applying for such licenses. These licenses require applicants to undergo comprehensive due diligence checks, including traditional financial audits, which are broader in scope than simple proof of reserves.

This insurance mandate not only serves to protect investors, but also significantly raises operational standards among crypto exchanges. This could potentially influence other global financial centers to adopt similar protective measures, thereby raising safety standards in the global cryptocurrency market.

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