According to reports, the Hong Kong Securities Futures Commission (SFC) is set to release VASP Crypto License guidelines for cryptocurrency exchanges (and over-the-counter trading platforms) in the coming month. The news comes just days after MiCA regulation was finally officially approved by the European Union and will be implemented between mid-2024 and early-2025, as reported by CoinPayments Media.
Citing the SFC’s chief executive Julia Leung, Bloomberg reported on April 27 that the new guidelines will provide support to crypto trading platforms offering trading services to retail investors starting June 1. The report mentioned that over 150 interested parties participated in the consultation process on the licensing regime, and regulatory requirements such as Anti-Money Laundering (AML) and Know Your Client (KYC) were among the considerations highlighted.
The SFC introduced a consultation process to establish a new licensing regime for centralized cryptocurrency trading platforms operating in Hong Kong in February 2023. The proposal required all such platforms to obtain a license from the regulatory body, with guidelines modelled on those for licensed securities brokers and automated trading venues.
While some prerequisites were modified, the SFC’s proposed guidelines for virtual asset trading platforms prioritized investor protection through robust measures, in line with the “same business, same risks, same rules” principle. The guidelines were developed in response to recent industry turmoil, including the collapse of players like FTX, and to highlight the need for clear regulatory standards to protect investors.
The new SFC regulations require anyone providing cryptocurrency-related services to apply for a license. Cryptocurrency exchanges and service providers must fulfil various prerequisites, such as safe asset custody, Know Your Customer, cybersecurity, accounting, risk management, and Anti-Money Laundering/counter-financing of terrorism measures.
Businesses intending to apply for a license must review and revise their systems and controls to meet the requirements. Exchanges and service providers that do not plan to apply for a license must prepare to shut down their Hong Kong-based operations.
The SFC will maintain a register of licensed cryptocurrency exchanges and service providers to inform the public of registration statuses of the different firms. The register will also outline the proposed regulatory requirements for licensing, guidelines for implementing AML controls, and other obligations for the industry.
An important section of the register pertains to the proposal to permit retail access to licensed cryptocurrency trading platforms. The existing Securities and Futures Ordinance (SFO) regime has been in effect since 2018, restricting SFO-licensed platforms to serving professional investors.
Public feedback had also revealed concern that denying retail access to cryptocurrency markets may lead to investor harm by pushing individuals to trade on unregulated overseas platforms accessible online.
Back in October 2022, the SFC authorized a regime for cryptocurrency futures exchange-traded funds, allowing retail investors indirect access to these markets through regulated products.
While confirmation is pending for most potential licensees of Virtual Asset Service Providers (VASPs), some trading platforms are already providing crypto-related services to investors under the supervision of the SFC. Reuters reports that OSL and Hashkey Group are among the few trading platforms that have received licenses from the SFC. The new regulatory push has also prompted exchange Huobi Global to seek a local license with plans to set up a new Hong Kong-only exchange focusing on institutional and high-net-worth individuals.
However, despite Hong Kong’s aspirations to become the next crypto hub, not all trading platforms have decided to stay for the long run. Bitget, a crypto exchange holding $1.4 trillion in assets, recently announced that it will stop offering services to its Hong Kong clients once the Hong Kong VASP regime becomes effective on June 1st.
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