Proposed licensing regime for virtual asset exchange in Hong Kong

On 3 November 2020, the Hong Kong Government commenced a public consultation (“Consultation”) on its proposed amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (“AMLO”).

Within this, the government has proposed a licensing regime for virtual asset services providers (“VASPs”) pursuant to the recommendations of the Financial Action Task Force (“FATF”).

Currently, virtual asset trading platforms (“VATPs”) are only regulated by a voluntary opt-in regime outlined by the Securities and Futures Commission (“SFC”) in a position paper in November 2019. However, this is only applicable to platforms which enable clients to trade virtual assets (“VAs”) with securities features.

The proposed regime is seeking to cover any person seeking to conduct a VATP in Hong Kong, and require such person to apply for a licence from the SFC.

It is proposed that only locally incorporated companies with a permanent place of business in Hong Kong will be eligible to apply for a licence from the SFC as a licensed VASP.

The licensed VASPs will also be subject to the anti-money laundering and counter-terrorist financing (“AML/CTF”) requirements of the current Schedule 2 to the AMLO and other regulatory requirements for investor protection purposes.

The SFC will be empowered to supervise the compliance of VASPs in accordance with the AMLO requirements. Any person carrying on such regulated activity without a valid licence commits a criminal offence.

Many of the fintech and trade bodies will be responding to the consultation. However, we know that not all platforms are members of those associations.

Therefore, Simmons & Simmons is currently preparing a response to the Consultation on behalf of our clients. The Consultation will close on 31 January 2021.

If you would like feed into our responses, please do not hesitate to contact us.

Please get in touch and be heard in this important development for crypto in Hong Kong.