In a crucial step to increase the security and reliability of the crypto market, Hong Kong’s Securities and Futures Commission (SEC) has rolled out new requirements, introducing a mandatory 50% insurance coverage for Hong Kong licensed crypto exchanges.
This development signifies a noteworthy step in the ongoing efforts to establish a robust framework for protecting users’ investments.
Recent reports highlight the Hong Kong SEC‘s decisive action in setting a minimum insurance requirement of 50% for licensed crypto exchanges responsible for managing customer assets. This proactive measure is a response to the escalating growth of the crypto market, aiming to strengthen the market’s resilience against potential risks and uncertainties.
OSL Exchange, a virtual asset trading platform, made headlines last week by announcing a two-year partnership with Canopius, a syndicate of underwriter Lloyds of London. This strategic collaboration has resulted in an insurance policy covering an impressive 95% of OSL Exchange users’ assets, setting a new industry benchmark for user protection.
In a parallel move, HashKey Exchange, another influential player in the Hong Kong crypto scene, formalised a crypto insurance agreement with OneInfinity on November 16, 2023. This agreement not only encompasses traditional asset protection but also extends to potential incidents related to server downtime, data backup, and load management.
Reports indicate that the coverage guarantees protection for user assets ranging from $50 million to $400 million, showcasing the commitment of licensed exchanges to strengthen investor confidence.
Since Hong Kong opened its doors to crypto trading for retail investors in August of last year, only two exchanges, OSL and HashKey, currently hold virtual asset trading licenses.
This exclusivity not only enhances the credibility of these platforms but also highlights the stringent due diligence checks as prerequisites for obtaining such licenses. As of the latest update, 13 entities are in the process of applying for licenses, emphasising the growing interest and demand within the Hong Kong crypto market.
Applicants are subject to rigorous requirements, including traditional financial audits that surpass the scope of mere proof-of-reserves. Despite the seemingly modest application fees, Web3 firms are investing substantial amounts, reaching up to $25 million, in building applications for these licenses.
The financial commitment primarily focuses on product development and team-building, underscoring the dedication of traditional financial entities entering the crypto space.
The newly implemented insurance requirements and strategic partnerships with reputable underwriters showcase the determination of licensed crypto exchanges in Hong Kong to ensure a secure and resilient environment for users. These developments are anticipated to set a precedent for other jurisdictions and contribute significantly to the development of the global crypto market.
The collaboration between exchanges and underwriters not only protects users but also fosters a sense of trust and credibility in the broader market. Hong Kong’s proactive attitude is likely to encourage other jurisdictions to adopt similar measures, fostering a more secure and sustainable crypto landscape on a global scale.