Hong Kong proposes new licensing regime for Virtual Asset Service Providers

The Hong Kong Financial Services & Treasury Bureau (FSTB) issued a public consultation paper on 3 November setting out a proposed new licensing regime for virtual asset service providers (VASPs). It implements the Financial Action Task Force’s (FATF) requirement to regulate VASPs for anti-money laundering and counter-terrorist financing purposes.

Under the proposed VASP licensing regime, operating a virtual assets exchange will be a regulated virtual asset activity under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) and will require a VASP licence from the Securities & Futures Commission (SFC).

The eligibility and regulatory requirements under the VASP regime be similar to the requirements under the SFC’s existing ‘opt in’ regime for virtual asset trading platforms that trade securities (VATP) and will operate in parallel with the regulatory regime for VATPs.

VASPs will initially only be allowed serve professional investors – who have over HK$8 million (US$1 million) in assets under the proposed regime, and will have to maintain high levels of investor protection and security. Operators will have to ensure there are no retail investors trading on their platforms.

The new regulations will cover all types of virtual assets’ trading platforms operating in Hong Kong, as well as overseas platforms targeting local investors.

The consultation period runs until 31 January 2021 and a bill to bring the new regime into effect will likely be introduced to Hong Kong’s Legislative Council in 2021.

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