HONG KONG — Hong Kong’s financial regulator will publish a framework for cryptocurrency exchanges later on Wednesday, Chief Executive Ashley Alder told a fintech conference in the city.

Market watchdogs worldwide are debating if they should regulate the cryptocurrency industry and how, as they widen focus beyond mostly protecting investors from scams based on digital assets, although Facebook’s launch of Libra has caused many to look at broader systemic risks.

Several of the world’s largest crypto currency exchanges operate in Hong Kong, but Alder said they had until now largely escaped regulation because most virtual assets fall outside the definition of a security.

The new rules draw on the standards Hong Kong’s Securities and Futures Commission (SFC) expects for conventional securities brokers.

They will cover aspects of custody, know-your-customer requirements, anti money laundering rules and market manipulation, besides issues specific to the cryptocurrency industry.

Alder, the head of the SFC, first announced initiatives on digital currencies a year ago at Hong Kong’s 2018 Fintech Week, including a “sandbox” for crypto exchanges, as a way for the regulator and exchanges to discuss ways to oversee digital currencies.

Since then, he said, “We met with a large number of crypto platform operators to see … whether some platforms were in fact capable of operating in a regulated environment.”

Alder added, “After an in-depth examination of their unique technical and operational features, we concluded that some could be regulated by us.”

Exchanges can apply to be regulated from Wednesday.

“Ashley Alder’s announcement of a regulatory framework for digital asset trading platforms is a seminal moment for financial services in Asia and points to increased acceptance of digital assets as new type of financial instruments,” Hugh Madden, chief executive of BC Group, a technology and digital asset trading company, said in an emailed statement.

The company declined to say at this stage whether it would seek to be regulated by the SFC.

The regulator will adopt an “opt in” approach, as regulations will not apply to exchanges unless they trade something that is a security, which, Alder said, did not include bitcoin.

He also said a second statement issued later on Wednesday by the SFC would emphasize the risk of trading virtual asset futures, warning that those offering such trading “may well be conducting an illegal activity”, under Hong Kong’s laws, whether related to securities and futures or gambling. — Reuters