Globally, the virtual asset market is growing under more and more regulatory scrutiny, developing new hubs for the market. One such hub is Hong Kong, which, in contrast to mainland China, has proposed regulations allowing ordinary investors to trade specific “large-cap tokens” on authorized exchanges. Industry experts believe Bitcoin and Ether are likely to be included, even though the Securities and Futures Commission of Hong Kong has not indicated which tokens will be authorized.
The prohibition on cryptocurrency trading in China was intended to shield private investors from speculative activities. However, the growing number of bankruptcies and layoffs in the cryptocurrency sector might support their actions. It is difficult to imagine Beijing sitting by while the rest of the world creates new building blocks that may eventually spark a new wave of innovation, as large as the current internet itself, given that the industry continues to draw talent and investment.
As a result, numerous web3 startups from China have established new bases in cities with better cryptocurrency infrastructure, like Singapore and Dubai. However, some Chinese-founded web3 companies in exile may think about returning home given Hong Kong’s more lenient regulatory environment for cryptocurrencies.
Hong Kong’s proposal stipulates that all centralized virtual currency exchanges operating in the city or marketing services to the territory’s investors must obtain licenses from the securities and futures authority.
The new licensing regime will take effect on June 1. This strategic action by Hong Kong may draw investments and crypto companies to the city. Implementing clear regulatory frameworks would help the industry gain mainstream adoption and bring in more institutional investors.
The Legislative Council passed the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022 (AML/CTF Amendment Bill 2022) on December 7, 2022. This bill introduced a licensing regime for virtual asset service providers (VASPs) and imposed anti-money laundering (AML), counter-terrorism financing (CTF), and investor protection obligations upon these actors.
VASPs that are licensed in Hong Kong is subject to:
- Customer Due Diligence
- Ongoing Monitoring
- Record-Keeping
- Reporting
- Investor Protection
- Penalties for Non-Compliance
Licensing and registration Requirements in Hong Kong
The HKMA will only grant licenses to VASPs that meet certain criteria, including:
- The company must be incorporated in Hong Kong.
- The company must have a permanent place of business in Hong Kong.
- The company must have adequate financial resources.
- The company must have appropriate AML/CTF systems and controls in place.
- The company must have a compliance officer responsible for ensuring the company’s compliance with the new regulations.
VASPs that fail to obtain a license will be prohibited from providing virtual asset services in Hong Kong.
- Published By Team Hongkong Journalist
