Hong Kong securities regulator is considering regulating decentralized finance (DeFi) projects by subjecting them to licensing requirements.
According to Zhonghui, automatic trading services like decentralized exchanges fall under the regulator’s authority. So, any DEX that lists virtual assets must also apply for licenses.
Zhonghui made this statement at the Web3 Festival in Hong Kong.
Zhongui noted that most DeFi projects are not decentralized because only a few people tend to control most tokens. He added that the financial regulatory agency must look beyond the description of these projects to their substantive context.
Hong Kong has recently stepped up activities to become a crypto hub for Asia. The authorities have made several recent pro-crypto moves that have attracted more firms to the region.
Besides that, Hong Kong has a new legal framework for licensing crypto trading platforms — which will become effective by June.
Other countries planning DeFi regulation
Meanwhile, regulators in the U.S. and France have just released reports highlighting the need to regulate DeFi.
The French Central Bank recommended that DeFi protocols be forced to incorporate and certify their smart contracts’ security.
“Players exercising effective control over sensitive services could be required to incorporate, becoming subject to supervision,” the report said.
The U.S. treasury department also recommended that DeFi services comply with anti-money laundering and terrorist financing rules.
“DeFi services at present often do not implement AML/CFT controls or other processes to identify customers, allowing layering of proceeds to take place instantaneously and pseudonymously,” the report stated.
With several jurisdictions now looking to regulate the DeFi sector, there are concerns about what it could mean for the industry.
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