Hong Kong Financial Services and Treasury Office (FSTB) published an article that reveals the main findings and conclusions drawn after a consultation on a proposed licensing requirement for digital asset trading platforms.
The Hong Kong government has reportedly proposed certain regulatory changes to improve existing AML and counter-terrorist financing guidelines by providing an updated regulatory framework for providers of virtual asset services or VASPs.
Currently, VASPs are regulated through a voluntary licensing framework. Since the introduction of the guidelines in November 2019, the Securities and Futures Commission (SFC) in Hong Kong, four requests for review were filed and issued only one license to OSL.
The FSTB intends to bring digital asset exchange operators in the region into the regulatory framework imposed by the SFC – which was introduced in November 2020. It involved a 3-month consultation on a proposed regulatory framework, so that agencies can assess the general public’s point of view on the regulation of the new asset class.
the Consultation conclusions document, published this month, covers the important comments Hong Kong regulators have received from the general public and industry participants like the Hong Kong Bitcoin Association, the Hong Kong Digital Asset Exchange and PwC. The document also reveals the position and opinions of the regulator on these recommendations.
The first proposal recommended a licensing framework for digital currency exchanges only. It would have ruled out over-the-counter (OTC) trading and P2P trading, which many respondents did not like too much. Respondents said a wider range of VASPs should be covered.
Currently, crypto exchanges in Hong Kong are quite widespread and have matured considerably. They are ideal for local traders and investors when it comes to trading cryptocurrencies, the document notes.
Since funds transfers made by virtual currency platforms are traceable for AML / CFT purposes, there is no need to include such activities in existing regulatory guidelines.
The document also mentioned:
“For now, flexibility will be built into the licensing regime so that it can be extended to cover forms of virtual asset business other than virtual asset trading where needed. feel in the future. However, we will keep in mind the changing landscape in Hong Kong and consider the need for regulation as the market evolves. “
The proposal also recommended that only local businesses with a permanent establishment in Hong Kong be eligible for the applicable permits or licenses. While a few respondents seem to agree with this suggestion, more than a dozen said local unincorporated businesses might also be allowed to participate in the regulatory regime.
Hong Kong officials added that they would continue to update the proposal to allow businesses incorporated in other jurisdictions to register their activities in Hong Kong (so they can apply for a national license).
More than 40% of them notably said that retail investors should be allowed to participate in some of the similar offers as accredited or professional investors in the region.
However, the government insists that the significant potential risks involved in trading cryptoassets and their highly volatile nature make them too risky for retail investors.
The document noted:
“As the virtual asset sector is an emerging sector with higher risks than conventional financial markets, the requirement to limit the services of a virtual asset exchange to professional investors is necessary to ensure an adequate degree of protection of the investing public, in accordance with the policy objective of promoting the healthy and orderly development of the market. We believe that the requirement is appropriate at least for the initial phase of the licensing system. We will continue to monitor the changing landscape and review the position as the market becomes more mature going forward. “
Hong Kong VASP Consultation Digital Asset Responses May 2021