Hong Kong Sets 50% Insurance Mandate for Crypto Exchanges

Hong Kong's Securities and Futures Commission (SFC) has recently introduced a new regulation mandating that all licensed crypto exchanges in Hong Kong must insure at least 50% of their customers' assets. This move aims to enhance the security and trustworthiness of these platforms, particularly 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 underwriter Lloyds of London, to secure an insurance policy that covers a remarkable 95% of its users' assets. This level of coverage significantly surpasses the minimum requirement set by the SFC. Similarly, HashKey Exchange has signed an agreement with OneInfinity to provide insurance coverage of up to $400 million worth of users' assets. This coverage may potentially be expanded in the future to include incidents such as server downtime and data back-up 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 virtual asset trading licenses. Currently, thirteen entities are in the process of applying for such licenses. These licenses require applicants to pass comprehensive due diligence checks, including traditional financial audits that are broader in scope than mere proof-of-reserves.

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