Virtual assets and cryptocurrency trading have drawn increased financial regulators’ attention in the past couple of years in light of the growing interest from global investors, including retail investors, in this space seeking investment returns, for example:
- In the anti-money laundering field, the Financial Action Task Force (FATF) published an updated Guidance for a Risk-Based Approach for Virtual Assets and VASPs in October 2021. The Guidance aims to provide a high-level blueprint for international lawmakers and financial regulators to navigate the application of the FATF 40 recommendations in virtual asset activities and VASPs.
- The Financial Stability Board (FSB) issued a statement in July 2022 on the international regulation and supervision of crypto-asset activities following the turmoil in the crypto-coin and stable-coin markets. The FSB stressed the need for effective regulation and oversight to guard the traditional financial markets against risks brought by the new technology and financial innovation.
Following the global regulatory trend to implement checks and balances to the industry and reacting to several risk events in the virtual asset space, the Hong Kong SAR Government amended the existing Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Chapter 615, “AMLO”) in 2022 to introduce a regulatory regime over business activities involving virtual assets (“VA”). Specifically, the regime provides that any person carrying on a business of providing VA services without a license would commit an offense, and the Securities and Futures Commission (“SFC”) in Hong Kong was assigned to maintain a licensing regime for VASPs.
After the amendment bill was passed in December 2022, SFC launched a public consultation in establishing a licensing regime of Virtual Asset Trading Platform Operators in February 2023 and after the conclusion of the consultation in May,the new regime came into effect on June 1 2023. Below sets out the key provisions of the new regime:
| Applicable Laws | SFO | AMLO |
| License type | Type 1 dealing in securities Type 7 providing automated trading services | Virtual Asset Trading Platform Operator (i.e., operator of a virtual asset exchange) |
| Scope of license | Centralized platforms providing trading services in security tokens using an automated trading engine which matches client orders and also providing custody services as an ancillary service to their trading services | Centralized platforms providing trading services in non-security tokens using an automated trading engine which matches client orders and also providing custody services as an ancillary service to their trading services |
| Persons to be licensed | Licensed corporations (LCs) Responsible officers and licensed representatives of LCs | Licensed providers (LPs) Responsible officers and licensed representatives of LPs |
Similar to the license requirements on the firms conducting regulated activities in Hong Kong, the SFC requires licensed VASPs and their key personnel to demonstrate fitness and properness as well as competence in the license application and maintain such standards on an ongoing basis. Among other things, the SFC considers the following aspects for the general fit and proper requirement:
- financial status or solvency;
- education or other qualifications or experiences;
- ability to carry on the Regulated Activities concerned competently, honestly and fairly; and
- reputation, character, reliability and financial integrity.
As per the licensing conditions imposed on the licensed virtual asset trading platforms as of September 2023, those platforms can only serve Professional Investor clients. For more information on the definition of professional investors in Hong Kong. (Please refer to Professional Investor Regime in Hong Kong for details about the regime).
A list of licensed virtual asset trading platforms is available at the SFC website for the public to check the regulatory status of specific VASPs that operate in Hong Kong or actively market their services to Hong Kong investing public. It is important to note that the licenses from SFC do not guarantee the performance or creditworthiness of the related VASPs. Investors may also refer to the SFC’s website for a list of known suspicious virtual asset trading platforms.
Relevant Resources: