Virtual asset exchanges to be regulated by SFC

Virtual asset exchanges to be regulated by SFC

The regulated environment for trading platforms in Hong Kong that offer virtual assets is set to change. The framework had been based on the SFC’s definition of securities – stating that rules would only apply to a trading platform if at least one of their assets was classed this way. In future platforms trading any type of crypto-asset will need to hold an SFC license. New AML proposals also herald changes for dealers in precious metals and stones, and a number other amendments designed to align Hong Kong’s regime to FATF.

The CEO of the Securities and Futures Commission announced the changes for virtual asset trading platforms in his keynote speech at Hong Kong Fintech week last month. Ashley Alder set out the government proposal for a new licensing regime under the Anti-Money Laundering Ordinance for platforms which trade any type of crypto-asset, even if none are classified as securities. He made it clear that if traders are operating in Hong Kong, or target Hong Kong investors, they would need to apply for an SFC licence. And failure to do so would be an offence.

Under the new regime it’s expected that those successful in their applications will, in the first instance, only offer their services to professional investors, given the risks involved. The SFC expects that once the new regime is in place, all virtual asset trading platforms will operate under either the existing opt-in framework or the new licencing approach.

The public consultation on Legislative Proposals to Enhance Anti-Money Laundering and Counter-Terrorist Financing Regulation in Hong Kong was published in November, with comments invited before the end of January 2021.

The new regime represents significant and wide implications for virtual asset trading platforms in Hong Kong. Virtual asset exchanges will need to consider if they are caught under the new regulatory perimeters, whether they require an SFC licence, and if so, whether they can meet requirements under the new regulatory framework to obtain a licence.

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