Cryptocurrency exchanges in Hong Kong are set to be prohibited from offering services to retail crypto traders following a new government proposal.

The legislative proposal, which Hong Kong's Financial Services and Treasury Bureau (FSTB) floated, has now moved past its consultation period, Reuters report.

During its consultation conclusions, the FTSB disclosed that all virtual asset service providers (VASPs) or cryptocurrency exchanges operating in Hong Kong would need a license to do so once the law is passed.

The regulator also said the services of cryptocurrency exchanges would now be restricted to only professional investors. The exchanges would be prohibited from offering services to retail traders until the initial stage of the licensing regime is over.

According to Hong Kong law, an individual must have a portfolio of HK$8 million ($1.03 million).

Hong Kong has one of the largest cryptocurrency exchanges in operation. Its opt-in approach under which exchanges can either choose to apply to be licensed by the regulator or not has provided a flexible environment for exchanges to operate in.

This new rule could drive exchanges out of Hong Kong and push investors onto unregulated venues.

Like many other countries, the Hong Kong Government has been assessing how they can regulate the cryptocurrency industry. Lack of investor protection and money laundering are particular concerns of the country.

Today's announcement forms the conclusion of a consultation process that ran from November 2020 to the end of January 2021.

The Hong Kong government is also reportedly planning to empower the city's Securities and Futures Commission (SFC) to withdraw the licenses of already authorized crypto exchanges.

When signed into law, the proposal would see the SFC provided with necessary intervention powers to impose restrictions or prohibit companies from providing crypto services.

Away from the companies, the proposal would also bring the SFC more powers to protect clients against potential misconduct from VASPs.

Other Asian countries like Singapore and China also have their regulations regarding cryptocurrency. Singapore requires all crypto exchanges to be licensed before they can operate, however unlike Hong Kong, retail traders can invest.

China recently reiterated its tough stance on cryptocurrencies. On Tuesday, the country announced a ban on banks and payment companies offering crypto-related services.

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