Ever since it became known that China is considering legalizing crypto trading for retail traders, Hong Kong authorities have been pushing hard for the development of a blockchain ecosystem.

Just last week, rumors emerged that the government was preparing a cryptocurrency law to be passed this year. And on Monday, ahead of a new licensing regime due to take effect on June 1, the Securities and Futures Commission (SFC) launched a public consultation on "requirements for operators of virtual asset trading platforms".

Many are wondering how China will react to this development. The answer came on Tuesday, when Bloomberg reported that Beijing showed behind-the-scenes support for Hong Kong's pursuit of blockchain. Representatives of the Chinese communications office and other officials have been regularly visiting Hong Kong over the past few months, actively communicating through business cards and WeChat data. They took a friendly approach to working with companies, checking events, requesting reports and, in some cases, making follow-up calls.

Accordingly, crypto operators in Hong Kong have taken the presence of these officials as China's tacit approval of the region's efforts to become a cryptocurrency hub. It also seems that the city is being used as a testing ground for digital assets, while maintaining tight control over crypto-related activities on the mainland. This has led to an influx of crypto firms from the mainland, as well as from overseas, who now seek to register their businesses back in China. This comes more than 15 months after Beijing banned the industry, forcing many to open businesses overseas.

Under the new licensing regime announced on Monday, all centralized cryptocurrency trading platforms that do business in Hong Kong or actively sell to Hong Kong investors will have to obtain an SFC license. The commission said the proposed regulatory requirements for virtual asset trading platforms are based on the requirements of the existing regime and are comparable to those for licensed securities brokers and automated trading platforms.

The SFC is particularly interested in obtaining public opinion on whether licensed platform operators should be allowed to serve retail investors and, if so, what measures should be taken to better protect these investors.

The SFC stated that to prepare for the new regime, operators of new and existing virtual asset trading platforms that plan to apply for a license should begin to review and revise their systems and controls. Those who do not plan to apply for a license should start preparing for an orderly closure of their business in Hong Kong.

Under the new regime, SFC-licensed exchanges will be allowed to offer larger coin trading services to individual investors, as long as they provide safeguards such as knowledge checks, risk profiles and ensure reasonable exposure limits.