Hong Kong Introduces Licensing Regime for Virtual Asset Service Provider (VASP)

To protect investors and reduce the risks spillover to the traditional financial system, the new licensing regime for virtual asset trading platforms came into effect on 1 June 2023 in Hong Kong. All centralised virtual asset trading platforms carrying on their business in Hong Kong or actively marketing their services to Hong Kong investors need to be licensed and regulated by the Securities and Futures Commission (SFC).

Virtual asset trading platforms already in operation in Hong Kong before 1 June 2023 may continue to operate in Hong Kong during the non-contravention period (1 June 2023 to 31 May 2024) and they must apply for an SFC licence if they wish to continue their operation in Hong Kong. But investors should note that a virtual asset trading platform applying for an SFC licence does not necessarily warrant approval of a licence. Investors should also note that most virtual asset trading platforms currently accessible by the public are not regulated by the SFC.

The SFC formulated the virtual asset trading platform regulatory regime based on the “same business, same risks, same rules” principle. Under the new regime, virtual asset trading platforms are subject to the same regulatory requirements applicable to traditional financial institutions (namely, securities brokers and automated trading venues), with adaptations to address the specific features and risks of virtual assets, including safe custody of client assets, Know-Your-Client processes, anti-money laundering/counter-financing of terrorism, prevention of market manipulative and abusive activities, accounting and auditing, risk management, avoidance of conflicts of interest and cybersecurity.