Hong Kong Implements New Licensing Regime for Virtual Asset Trading Platforms
Hong Kong’s Securities and Futures Commission (SFC) has introduced a circular outlining transitional arrangements for the new licensing regime for virtual asset trading platforms (VATPs) offering non-security tokens. The circular, released on May 31, 2023, provides guidelines for VATPs to continue operating during the transition period from June 1, 2023, to May 31, 2024.
Under the new regime, which falls under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, all VATPs conducting a virtual asset exchange business in Hong Kong or actively marketing their services to Hong Kong investors will need to be licensed by the SFC.
The circular specifies that the transitional arrangements apply exclusively to VATPs providing trading services in non-security tokens and not to compliance with the Securities and Futures Ordinance. VATPs intending to offer trading services in security tokens will be subject to Hong Kong’s securities laws and must obtain the relevant license under the SFO before commencing their operations.
To be eligible for the transitional arrangements, pre-existing VATPs, which were providing a virtual asset service in Hong Kong before June 1, 2023, must demonstrate meaningful and substantial presence. Factors considered include incorporation in Hong Kong, a physical office presence, central management and control by Hong Kong staff, key personnel based in Hong Kong, genuine trading volume with independent clients in Hong Kong, and other operational factors supporting their presence in the region.
The circular emphasizes that the mere establishment of a company in Hong Kong or having “shell” operations will not meet the requirements for eligibility.
During the transitional period, pre-existing VATPs can continue providing virtual asset services in Hong Kong without violating licensing requirements under the AMLO. However, they must comply with the SFC’s standards and work towards obtaining a license while reviewing and revising their systems and controls to meet legal and regulatory requirements.
Individuals performing regulated functions for pre-existing VATPs can continue their activities until May 31, 2024, without violating licensing requirements, provided the VATPs adhere to the non-contravention arrangement.
VATPs that were not operating in Hong Kong before June 1, 2023, are not eligible for the transitional arrangements and must refrain from conducting VATP activities or actively marketing their services to Hong Kong investors until they obtain the required license from the SFC. Engaging in unlicensed activities is considered a criminal offense.
Similarly, individuals performing regulated functions for VATPs that were not operating in Hong Kong before June 1, 2023, are not eligible for the non-contravention arrangement. Engaging in unlicensed activities in such cases is also considered a criminal offense.
Under the deeming arrangement, pre-existing VATPs meeting certain conditions can be deemed licensed from June 1, 2024, to conduct their virtual asset services while awaiting the final determination of their license applications. To qualify for the deeming arrangement, VATPs must submit a complete license application between June 1, 2023, and February 29, 2024. They must confirm their provision of VA services in Hong Kong before June 1, 2023, and commit to complying with regulatory requirements once deemed licensed.
Similarly, proposed licensed individuals who apply to be representatives or responsible officers of pre-existing VATPs can be deemed licensed from June 1, 2024, to perform regulated functions for the principal VATPs. They must meet specific conditions, including performing regulated functions before June 1, 2023, and submitting a complete license application between June 1, 2023, and February 29, 2024.
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