The Securities and Futures Commission of Hong Kong (SFC) recently announced the new regulatory and licensing requirements for virtual asset trading platform operators, outlining the finalized regulatory requirements and proposed transitional arrangements under the new licensing regime for centralized virtual asset trading platforms (VATPs). The new regime for VATP, which is to fill in the regulatory lacuna in the regulation of virtual asset trading, became effective on 1 June 2023.

Before the implementation of the new licensing regime, only centralised VATPs that offered trading services for security tokens were regulated by the SFC under the Securities and Futures Ordinance (Cap. 571) (SFO), and trading activities involving non-security tokens were not subject to the scrutiny of the SFC. With the introduction of the new licensing regime, trading of non-security tokens will now be regulated. The VATP regime will run concurrently with the SFO regime, which means VATPs involved in trading of security tokens will continue to be regulated under the SFO, while those trading non-security tokens will be regulated under the VATP regime. Despite the distinction between security and non-security tokens, VATP operators may consider obtaining dual licenses under both SFO and the VATP regimes in order to ensure that their business operations continue without interruption and to mitigate the risks of non-compliance with licensing requirements under either regulatory regime.

COVERAGE OF THE NEW LICENSING REGIME

Under the new regime, the SFC requires all VATPs that, (i) operate a virtual asset exchange ("VA service") in Hong Kong; or (ii) actively marketing their services to Hong Kong investors, will need to be licensed by the SFC. Individuals or entities carrying on a business to provide a VA service, or hold themselves out as carrying on such services and business, are required to apply for a license from the SFC. Also, any person who actively markets to the public any services that the person provides (and which would constitute a VA service if provided in Hong Kong), is deemed to be providing VA services. VATPs seeking to provide trading services in security tokens must obtain licenses for Types 1 and 7 regulated activities under the SFO.

VATP LICENSE APPLICATION

It is advisable for VATPs to apply for dual licensing under both the SFO licensing regime and the new VATP licensing regime under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap 615) (AMLO). VATP applicants must demonstrate to the SFC that they can also meet similar licensing criteria as those required under the existing SFO licensing regime:

  • fitness and properness requirements (e.g., financial status or solvency, educational qualifications or experience, ability to carry on the relevant activities, the reputation, character, reliability, and financial integrity of the applicant);
  • competence requirements (e.g., business, corporate governance, and compliance of a corporate; or knowledge, experience, and qualification of an individual);
  • continuous professional training requirements;
  • conduct of business principles when carrying on the activities; and
  • financial soundness (e.g., requirements of minimum paid-up share capital and minimum liquid capital).

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