What is the latest licensing system for digital asset service providers in Hong Kong? This adjustment is compared with the previous regulatory policies for virtual asset exchanges released by the Hong Kong Securities Regulatory Commission.
Written by: Ad
Today, the Financial Services and Treasury Bureau of the Hong Kong Special Administrative Region Government issued the “Public Consultation on Legislative Proposals for Strengthening the Regulation of Anti-Money Laundering and Terrorist Financing in Hong Kong” to amend Chapter 615 of the Laws of Hong Kong “Anti-Money Laundering and Terrorist Financing Ordinance” Collect public opinions. The discussion on the “virtual asset trading platform license” in the consultation document has aroused great market attention.
What is the latest definition of virtual assets and virtual asset exchanges in Hong Kong? What is the latest licensing system? This adjustment is compared with the previous regulatory policies for virtual asset exchanges released by the Hong Kong Securities Regulatory Commission. The chain news will take you through this article.
On the 3rd, Oudari, Chief Executive of the Hong Kong Securities Regulatory Commission, stated on the Hong Kong Fintech Week online forum that the Securities Regulatory Commission launched a regulatory framework for virtual asset trading platforms last year, but it is still difficult to supervise all platforms. After the launch of the licensing system, all virtual platforms operating in Hong Kong or targeting Hong Kong investors must apply for licenses and are subject to regulatory supervision. All virtual asset trading platforms will operate under the regulatory framework and licensing system last year.
Who to supervise?
The consultation document pointed out that “it is recommended to establish a licensing system for virtual asset service providers, requiring anyone who intends to engage in regulated business of virtual asset trading platforms in Hong Kong to apply for a license from the Securities and Futures Commission and meet the criteria for suitable candidates to be licensed. People must comply with the anti-money laundering and terrorist financing regulations and other regulatory requirements designed to protect investors.”
For the definition of virtual assets , virtual asset service providers, and virtual asset exchanges , the consultation document gives clear explanations.
Virtual assets refer to ” assets that express value in digital form, and related assets can be bought, sold or transferred in digital form, or used for payment or investment purposes.” Its definition does not include legal digital currencies (including central bank digital currencies) and financial assets (such as securities and approved structured products) regulated by the Securities and Futures Ordinance (Chapter 571). By definition, closed-end, limited-use products that cannot be transferred, traded, or swapped are not virtual assets. Regardless of whether the value is stable or not, its definition applies to all other virtual assets. Therefore, virtual assets that have assets as guarantees to stabilize their value ( so-called “stable coins” ) are also regulated virtual assets.
Virtual asset service providers refer to “operating specific activities related to virtual assets in the form of business.” Including (1) conducting virtual assets and legal currency transactions; (2) conducting one or more types of virtual assets mutual transactions; (3) transferring virtual assets; (4) providing custody or management services for virtual assets, or providing control virtual assets Asset tools; and (5) Provide related financial services for the issuance of virtual assets.
Virtual asset exchange refers to allowing or inviting customers to place orders, buying or selling any virtual assets in currency or virtual assets (regardless of the same kind of virtual assets), and has kept, implemented, controlled or possessed anything in the course of business Currency or virtual asset trading platform.
How to supervise?
The consultation document pointed out that the business of the virtual asset exchange is a “regulated virtual asset activity” under the Anti-Money Laundering Ordinance. The virtual asset exchange is currently expanding in Hong Kong and developing a more mature business. In order to explore the business opportunities brought by financial innovation and digital transformation, and reduce their risks, it is necessary to establish a licensing system for virtual asset exchanges.
Anyone who engages in regulated virtual asset activities without a license is a criminal offence and can be imprisoned for 7 years and fined 5 million yuan if convicted; if a licensed virtual asset service provider and its responsible person violate the law to combat money laundering and terrorists Fund raising requirements can be criminally prosecuted, convicted by public prosecution, can be imprisoned for two years and fined 1 million yuan . They also have to face administrative sanctions, including condemnation, order to make corrections, fines (the maximum amount is 10 million yuan, or the profits obtained or avoided due to violations of the anti-money laundering and terrorist financing regulations or other improper behaviors required by the regulations) Three times the amount of expenditure, whichever is higher), and the suspension or cancellation of the license.
Latest licensing rules
The most basic requirements for the qualification of the licensed company in the consultation document include: (1) Only companies established in Hong Kong with a fixed place of business can apply for a virtual asset service provider license. (2) Natural persons or business models (such as sole proprietorship or partnership) that do not have the status of a legal person are not eligible to apply for a virtual asset service provider license.
With reference to the voluntary licensing system, a document from the Hong Kong Financial Services and the Treasury Bureau recommended that the Hong Kong Securities Regulatory Commission be empowered to impose licensing conditions on licensed virtual asset service providers. Chain News summarized this, including only professional investors and financial capabilities. , Knowledge and experience, business soundness, risk management, split management of client assets, listing and trading policies, financial reporting and disclosure, prevention of market manipulation and violations, prevention of conflicts of interest, etc.
Oudari pointed out, “The success of the license application will depend on the platform’s financial status, operating experience, risk management, etc. As the investment risk is taken into account, the platform can only provide services to professional investors.”
Different from the previously published policy
Hong Kong’s supervision of virtual assets has always been at the forefront of the world. Before this consultation document, Hong Kong has successively issued the “Hong Kong Securities Regulatory Commission Virtual Currency Supervision Regulations” (hereinafter referred to as the “Regulations”) and “Warnings on Virtual Asset Futures Contracts” ( There are many regulatory rules for virtual assets such as the “Warning”) and the “Position Letter: Supervision of Virtual Asset Trading Platforms” (hereinafter “Position Letter”).
In fact, the “Regulations” promulgated by Hong Kong on November 1, 2018 is mainly a conceptual framework, and its focus is mainly on funds and sales platforms that invest in virtual currencies or assets. The content includes the requirement to exceed 10% of the asset size (AUM). Asset funds can only be sold to professional investors, and any funds and brokers that invest in virtual assets must register with the China Securities Regulatory Commission.
In the “Position Letter” issued on November 6, 2019, the Hong Kong Securities Regulatory Commission elaborated on their regulatory measures for virtual asset trading platforms. It mainly involves detailed rules such as asset custody, KYC certification, market manipulation, compliance supervision, accounting and auditing, professional investor thresholds, and anti-money laundering .
At the same time, the position paper also emphasized that the Hong Kong Securities Regulatory Commission will not supervise Bitcoin, but only supervise trading security token platforms ; Bitcoin and other common cryptocurrencies are not securities. The Hong Kong Securities Regulatory Commission stated that they have no right to license or supervise platforms that only trade non-securities-type virtual assets or tokens. Because such assets do not belong to “securities” or “futures contracts” under the Securities and Futures Ordinance. In other words, only platforms that provide customers with securities-type virtual assets or token trading services fall under the supervision of the CSRC. Even if only one token belongs to securities, it is also under the supervision of the CSRC.
Oudari said, “The previous regulatory framework was not a mandatory requirement, and virtual asset operators can also evade supervision. For example, if encrypted assets are not a security type, they are not regulated. ” The release of this consultation document is a mandatory licensing system. Virtual asset service providers have made more detailed supplements on anti-money laundering, licensing rules, regulatory responsibilities, and sentencing for crimes against statutory crimes on the basis of the original Position Paper.
The Secretary for Financial Affairs and the Treasury of the Hong Kong Special Administrative Region Government, Xu Zhengyu, said, “Unlike the SFC’s voluntary regulatory pilot program in the regulatory sandbox at the end of last year, the proposed licensing system this time is mandatory and will fully regulate securities For the trading services of non-securities tokens, we will require all virtual asset trading platforms to operate in the sun. They need to obtain a license issued by the China Securities Regulatory Commission, and implement relevant measures under the “Regulations on Combating Money Laundering and Terrorist Fund Raising,” and other Requirements to protect investors and prevent market manipulation.”
Judging from the current documents issued by Hong Kong, insisting on the establishment of a company in Hong Kong and a natural person or business model with a fixed place of business and a legal person in charge is the core of the Hong Kong Digital Asset Exchange’s license and compliance operation. However, the company’s overall operating status, risk management, financial status, and anti-money laundering are also the focus of Hong Kong’s regulatory authorities.
The rapid development of the field of virtual assets urgently requires comprehensive legislation. As a pioneer in supervision, Hong Kong has always provided the global market with experience in modifying laws and regulations. At present, regulatory agencies around the world are gradually paying attention to and improving relevant laws. For digital asset practitioners, it is necessary to explore regulatory trends in Hong Kong’s regulatory rules and take precautions to deal with the changing risk situation.
