Globally, regulators are looking at ways in which they correctly regulate the crypto sector without hurting innovation. In this light, Hong Kong’s SFC proposes sandbox for crypto exchanges as it unveils new rules for the nascent market.

Basically, the Sandbox provides a confined regulatory environment for firms that operate in areas without regulatory clarity. In particular, the Securities and Futures Commission (SFC) introduced the initiative in 2017 to try and regulated fintech. The initiative came under the Securities and Futures Ordinance where SFC would test innovative financial products.

SFC proposes Sandbox for crypto exchanges similar to that for fintechs

Further, the Sandbox aims to find out the true potential and risk of such innovations before allowing their public offering. Further, Sandbox seeks to enable firms in the upcoming market to “identify and address risks or concerns relevant to their innovative technologies and internal control systems so as to bring them in line with the existing regulatory framework.”

The bottom-line is to ascertain that whatever innovation is coming onto the market is safe. In the same spirit, SFC is putting the crypto firms in sandbox for the similar purpose of testing their potential.

According to an official statement, firms must meet some conditions for them to qualify for inclusion in the Sandbox. In the case of fintechs, the firms “must be fit and proper, utilise innovative technologies and be able to demonstrate a genuine and serious commitment to carry on regulated activities through the use of Fintech.”

Opt-in approach

As the SFC proposes Sandbox for crypto exchanges, it is a huge signature of the direction Hong Kong is going. Reuters quotes Ashley Alder, SFC Chief who says the regulator will announce a “new exploratory approach” regarding crypto regulation.

Per Alder, the SFC will separate the exchanges that want regulations from that are against. Then, the willing ones will enter the Sandbox where no exchange will receive any formal regulatory approval. Speaking at a fintech conference in Hong Kong, Alder said:

“This is essentially an opt-in approach for exchanges and platform operators, and they will first explore the conceptual framework with us in a strict sandbox environment.”