Hong Kong SFC Paves The Way For Retail Access To Crypto Platforms ' Provided Safeguards Are In Place

• Law Firm: Herbert Smith Freehills
• Subject Matter: Finance and Banking, Government, Public Sector, Technology, Financial Services, Commodities/Derivatives/Stock Exchanges, Money Laundering, Fin Tech
• Author: Ms Hannah Cassidy, Natalie Curtis, Calvin To and Lydia Wong
• Published date: 07 March 2023

A major virtual asset (VA) regulatory milestone occurred last week when the Hong Kong Securities and Futures Commission (SFC) published its much anticipated Consultation Paper on the proposed Regulatory Requirements for Virtual Asset Trading Platform Operators Licensed by the Securities and Futures Commission (Consultation Paper). Among other things, the SFC proposes to allow all types of investors, including retail, to access VA trading platforms (VATP) provided the VATP comply with a range of robust investor protection measures.

The Hong Kong Financial Secretary also announced in his 2023-24 Budget speech that he will establish and lead a task force on VA development to provide recommendations on the sustainable and responsible development of the sector. With the Consultation Paper and proposed guidelines (see below), which run to over 350 pages, the SFC is seeking to strike a balance between investor protection and market development, but is it enough to ensure a vibrant VA sector in Hong Kong?

VASP licensing regime and draft VATP guidelines

The new licensing regime for virtual asset service providers (VASPs) under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) will come into effect on 1 June 2023 (VASP Licensing Regime). As a result, all centralised VATP carrying on business in Hong Kong, or actively marketing their services to Hong Kong investors, will need to be licensed by the SFC.

The Consultation Paper sets out the proposed regulatory requirements for VATP operators, including draft Guidelines for Virtual Asset Trading Platform Operators (VATP Guidelines) that cover both licensing and conduct requirements and are based on the existing regulatory requirements applicable to VATP operators licensed under the Securities and Futures Ordinance (SFO) and the Terms and Conditions for VA Trading Platform Operators (VATP Terms and Conditions). However, certain modifications have been made to take into account feedback received from the industry.

From 1 June 2023, all VATP operators, whether licensed under the SFO and/or the AMLO, will be subject to the VATP Guidelines.

Other draft guidelines

The SFC has also issued in draft:

• a stand-alone chapter (Chapter 12) in the existing Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations) This will be renamed as the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations and SFC-licensed Virtual Asset...