- Hong Kong’s cryptocurrency custodians and exchanges are currently in disagreement over the custody of customer assets.
- Zodia Custody’s CEO, Kal Chan, advocates for independent management of client assets, separate from exchange operations.
- Despite regulatory push, only a few exchanges in Hong Kong have complied with licensing requirements.
In Hong Kong, a dispute has erupted between cryptocurrency custodians and exchanges over the custody of customer assets. This article explores the differing viewpoints and the potential impact on the city’s burgeoning crypto industry.
Dispute over Cryptocurrency Custody in Hong Kong
Hong Kong’s cryptocurrency custodians and exchanges find themselves at odds over the custody of customer assets, sparking a contentious debate within the city’s burgeoning crypto industry. At the forefront of this dispute is Zodia Custody, a company backed by the British banking giant Standard Chartered. Zodia’s CEO, Kal Chan, has been vocal in advocating for regulatory oversight specifically tailored to cryptocurrency custodians.
Zodia’s Advocacy for Independent Management
Chan asserts that the current practice of exchanges managing both their funds and client assets could lead to perceptions of assets commingling, undermining trust in the market. Zodia aims to work closely with regulators to develop regulations that would allow custodians to manage client assets independently, separate from exchange operations. According to Chan, such a regulatory framework would instill confidence among institutional investors, who prioritize security and transparency when choosing where to store their digital assets.
Opposing Views from Licensed Exchanges
However, not everyone in the industry shares Chan’s viewpoint. Gary Tiu, executive director and head of regulatory affairs at OSL, a licensed Hong Kong-based exchange, argues that the existing regulatory framework already ensures the protection of customer assets. Tiu contends that any perceived duopoly in custody services is a result of market maturity rather than regulatory shortcomings.
OSL and Hashkey’s Dominance in the Custody Market
OSL, along with Hashkey, another licensed exchange, currently dominates the custody market in Hong Kong. Both companies handle customer funds in addition to operating as exchanges. Tiu emphasizes that these platforms undergo rigorous annual audits to ensure compliance with regulatory standards and safeguard client assets.
Regulatory Openness to Changes
Despite the opposing stances, there are signs that regulators may be open to considering changes. Chan hopes for a consultation period later this year, signaling a willingness from regulators to address concerns raised by custodians.
Unregulated Crypto Trading Platforms
The proliferation of unregulated crypto trading platforms in Hong Kong further complicates the debate over custody regulations. Financial regulators have been urging exchanges to apply for licenses, but only a few have so far complied. This regulatory push indicates the need for clear guidelines regarding custody practices in the cryptocurrency market.
Conclusion
The ongoing dispute over cryptocurrency custody in Hong Kong underscores the need for clear, tailored regulations in the rapidly evolving crypto industry. As the debate continues, the focus remains on ensuring the security and transparency of customer assets, whether through independent custodians or regulated exchanges.
