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  • Writer's pictureTeresa Pace

Hong Kong establishes a mandate for licensed cryptocurrency exchanges, requiring a 50% insurance coverage.

Updated: Jan 31

Companies are obligated to furnish insurance coverage to safeguard users' assets and must also undergo thorough audits. The Securities and Futures Commission of Hong Kong has established a mandatory insurance minimum of 50% for licensed cryptocurrency exchanges that manage customer assets.

According to recent revelations by OSL Exchange, the 50% insurance coverage requirement applies to the entirety of assets under custody. Simultaneously, OSL disclosed a two-year partnership with Canopius, a syndicate associated with underwriter Lloyds of London, for an insurance policy that secures 95% of its users' assets.

HashKey Exchange, another licensed virtual asset trading platform in Hong Kong, also entered into a crypto insurance agreement with OneInfinity on November 16, 2023, with the potential to extend coverage to incidents related to "server downtime, data back-up, and load management" in the future. Reports from local news outlets indicate that the coverage ensures protection ranging from $50 million to $400 million for users' assets.

Since Hong Kong allowed crypto trading for retail investors in August of the previous year, OSL and HashKey remain the only exchanges holding virtual asset trading licenses. Currently, there are 13 entities in the process of applying for such licenses. As part of the licensing requirements, applicants must undergo stringent due diligence checks, including a comprehensive traditional financial audit that extends beyond proof-of-reserves.

While the application fees for licenses are relatively low, ranging in the hundreds of dollars, Web3 firms are investing up to $25 million each in developing their applications for these licenses. The majority of expenditures are directed toward product development and team-building, with some applicants being traditional financial entities without prior exposure to cryptocurrencies.

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