- Hong Kong sets a 12-month transition for the new VATP licensing regime.
- VATPs need to prove a significant local presence under new rules.
- Non-compliance with new regulations may lead to criminal charges.
Hong Kong is strengthening control over its virtual asset trading platforms (VATPs), preparing for a 12-month transitional phase that began on June 1, 2023. The new regulatory system is focused on countering money laundering and terrorist funding, according to a circular released by the Hong Kong Securities and Futures Commission (SFC).
Existing VATPs have until May 31, 2024, to adapt to the new rules and must show a substantial presence in the region, with specific criteria such as a physical office, local management, and critical personnel stationed in Hong Kong. The SFC, however, made it clear that mere company registration or fictitious operations won’t pass the eligibility test.
Platforms engaging in security token trading services face different regulations under the Securities and Futures Ordinance. Such VATPs must acquire the relevant license before operations can begin. The SFC’s circular, however, applies only to platforms offering non-security token trading services.
The circular grants leeway to those VATPs already active in Hong Kong before the June 2023 cut-off. These platforms can continue to operate during the transition period without violating the licensing regulations, provided they work towards obtaining the necessary license.
New VATPs aiming to kickstart operations in the city-state aren’t afforded the same luxury. They must secure their license first or face criminal charges for unauthorized activities. This rule also applies to individuals performing regulated roles for such platforms.
As a final lifeline, the SFC has set up a ‘Determinative Arrangement’, allowing VATPs and their proposed managers or representatives meeting certain conditions to continue operations from June 1, 2024, while their license applications are still under review.
In recent months, Hong Kong has witnessed significant developments in the crypto space, indicating the growing interest and adoption of virtual assets. An announcement by Financial Secretary Chen Maobo last week reflected the government’s recognition of the potential of Web3 and virtual assets and its commitment to fostering responsible growth in the sector.
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