Existing Virtual Asset Operators Given Transitional Period To Comply With Proposed Legislation In Hong Kong ⋆ ZyCrypto

Effective June 1, 2023, all new Virtual Asset (VA) trading platforms conducting business or targeting investors in Hong Kong must be licensed and regulated by the Securities and Futures Commission (SFC). The SFC is an independent statutory body that regulates Hong Kong’s securities and futures markets.

In November 2020, through a consultation document, the Hong Kong Government sought views on legislative proposals to introduce a licensing regime for Virtual Asset Service Providers (VASPs) under the Anti-Money Laundering Ordinance (AMLO) and Counter-Terrorist Financing Ordinance (the AMLO VASP regime).

Pre-existing VA trading platform operators will be given either a transitory period to apply for a license or shall be requested to close down their operations. This is all detailed in the consultation paper released by the SFC on the proposed regulatory requirements for VA trading platforms under the AMLO VASP regime, which will become effective on June 1, 2023. 

“As has been our philosophy since 2018, our proposed requirements for virtual asset trading platforms include robust measures to protect investors, following the ‘same business, same risks, same rules’ principle,”  said Leung, the SFC’s Chief Executive Officer.

The SFC proposes a 12-month transitional period for the existing VA operators (already licensed by the SFC). The transition period is to enable these VA operators to revise their systems and controls to meet some of the requirements for its legislative proposals.

As part of the transition process, from June 1, 2023, all VA trading platform operators doing business in Hong Kong or actively marketing services to Hong Kong investors without a valid license from the SFC will be in breach of the licensing requirements, except VA trading platforms eligible for transitional arrangements. 

For transitional arrangements, the VA trading platforms must have been in operation in Hong Kong or should have commenced trading in non-security tokens in Hong Kong before June 1, 2023.  

Upon the commencement of the AMLO VASP regime, all centralized VA trading platforms carrying on businesses in Hong Kong, or actively marketing their services to Hong Kong investors must be licensed and regulated by the SFC.

A non-contravention period between June 1, 2023, and May 31, 2024, has been set to enable eligible VA trading platforms to continue operations in Hong Kong after the commencement of the AMLO VASP regime.

Through a consultation paper released on February 20, 2023, the SFC has requested the public and industry to comment on the proposed regulatory requirements for licensed VA operators by March 31, 2023.