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Hong Kong’s Virtual Asset Trading Regulations, Explained

Hong Kong’s Virtual Asset Trading Regulations, Explained

Hong Kong’s new licensing regime for centralised virtual asset trading platforms (VATPs) is a significant development in the global push for cryptocurrency regulations. The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) will have come into effect on June 1, requiring all VATPs operating in Hong Kong or targeting Hong Kong investors to obtain a license from the Securities and Futures Commission (SFC).

This new regime is a commendable step towards bringing virtual asset trading platforms under regulatory oversight. With the rapid growth of the cryptocurrency market, it is crucial to establish robust regulatory frameworks to protect investors and prevent money laundering. By requiring VATPs to be licensed, Hong Kong aims to ensure compliance with legal and regulatory requirements and promote the responsible operation of these platforms.

The transitional arrangements outlined in the circular provide a reasonable timeline for existing VATPs to apply for a license and review their systems and controls to meet SFC standards. VATPs that have been providing virtual asset services in Hong Kong before June 1, and can demonstrate a genuine business presence will be allowed to continue operating until May 31, 2024, without breaching licensing requirements. This transitional period allows these VATPs to adjust their operations and align with the regulatory framework while maintaining continuity for their existing clients.

The eligibility criteria for the transitional arrangements focus on factors such as incorporation in Hong Kong, physical office presence, central management and control, key personnel location, and genuine trading volume. These criteria ensure that VATPs with a significant and substantial presence in Hong Kong benefit from the transitional arrangements while preventing shell companies from exploiting the system.

Additionally, individuals performing regulated functions for pre-existing VATPs are also granted a transitional period unti 2024, without breaching licensing requirements. This allows individuals to continue their roles during the transition and ensure a smooth process for both the VATPs and their employees.

Importantly, VATPs that were not operating in Hong Kong before June 1, are not eligible for the transitional arrangements. This sends a clear message that operating without a license will be considered a criminal offense.

Eligibility for transitional arrangements

As mentioned above, to be eligible for the transitional arrangements, VATPs must have been providing a service in Hong Kong before June 1. The SFC will assess the following factors to determine if a VATP is operating a genuine business within Hong Kong: Incorporation; a physical presence; central management and control exercised by a physical staff; and a live operation with clients and a genuine trading volume.

Merely setting up a company or having “shell” operations in Hong Kong will not meet the eligibility criteria.

VATPs operating in Hong Kong before June 1

VATPs that have a meaningful and substantial presence in Hong Kong before June 1, known as pre-existing VATPs, can continue to provide a service in Hong Kong until 2024 without breaching the licensing requirements. This is possible through the non-contravention arrangement. However, pre-existing VATPs must apply for a license, comply with the SFC’s standards, and ensure their systems and controls meet the legal and regulatory requirements.

Individuals performing regulated functions for pre-existing VATPs

Individuals can perform regulated functions for pre-existing VATPs until 2024 without violating the licensing requirements. This is allowed under the non-contravention arrangement. However, it is essential for individuals to ensure they comply with the applicable regulations.

VATPs not operating in Hong Kong before June 1

VATPs that were not operating in Hong Kong before June 1 are not eligible for the transitional arrangements. These VATPs should refrain from engaging in any activities in Hong Kong or actively marketing their services to Hong Kong investors until they obtain a license from the SFC. Engaging in unlicensed activities is a criminal offense.

Individuals performing regulated functions for VATPs not operating in Hong Kong before June 1

Individuals who perform, or hold themselves out as performing, regulated functions for VATPs that were not operating in Hong Kong before June 1 are also not eligible for the non-contravention arrangement. Engaging in unlicensed activities in this scenario is a criminal offense.

It is crucial for all VATPs to understand that they must obtain a license from the SFC before commencing any business activities or marketing their services to Hong Kong investors.

Enforcement actions and licensing process

The SFC has the authority to take enforcement actions against VATPs that operate without a license or fail to comply with the licensing requirements. These actions may include criminal prosecution, fines, or other regulatory measures.

For VATPs that need to obtain a license, they must go through the licensing process outlined by the SFC. The process involves submitting an application, providing relevant documentation, and demonstrating compliance with the regulatory requirements. The SFC will assess each application on a case-by-case basis, considering factors such as the VATPs financial soundness, operational capabilities, and systems and controls for combating money laundering and terrorist financing.

Ongoing compliance obligations

Once licensed, VATPs are required to maintain ongoing compliance with the regulatory obligations set out by the SFC. These obligations include:

· Implementing robust systems and controls to detect and prevent money laundering and terrorist financing activities.
· Conducting customer due diligence, including KYC (know your customer) procedures, to verify their identities.
· Reporting suspicious transactions and maintaining proper record-keeping.
· Complying with relevant regulatory requirements, such as disclosure obligations, and licensing conditions.
· Cooperating with the SFC in inspections and providing necessary information and assistance.

VATPs should ensure that their compliance frameworks are adequate and up to date to meet these obligations.

Impact on the virtual asset trading industry

The introduction of the new licensing regime for VATPs in Hong Kong aims to enhance investor protection, safeguard the integrity of the market, and mitigate the risks associated with money laundering and terrorist financing. By establishing a robust regulatory framework, the SFC aims to foster the development of a healthy and sustainable virtual asset trading industry in Hong Kong.

VATPs operating in or targeting the Hong Kong market should carefully review the licensing requirements and ensure compliance with the new regime. It is advisable to seek legal and regulatory advice to navigate the licensing process effectively and maintain ongoing compliance with regulatory obligations.

Speaking to industry experts

I had an opportunity to speak to industry experts and how they look at the current framework.

Tony Tong, Chairman of the Hong Kong Blockchain Association, said: “I welcome the [new regulations] as this will create many new job opportunities for the regulated crypto industry in Hong Kong. The issuance system for [virtual asset trading platforms] in Hong Kong has opened for applications today. Hong Kong’s comprehensive regulatory framework for virtual assets follows the principle of ‘same business, same risks, same regulation,’ with the aim of providing adequate investor protection and managing major risks. This framework promotes sustainable development and supports innovation in the industry.”

Jay Hao, former Chief Executive Officer of OKX, holds a similar view. “Hong Kong has taken a giant leap towards taming the unruly world of virtual asset trading platforms by introducing a licensing regime. They have decided to bring law and order to the Wild West of cryptocurrency. This move is seen as a positive step towards regulation, which means we can all breathe a collective sigh of relief, or at least a regulated sigh. So, let’s raise our glasses to Hong Kong’s virtual asset licensing regime- a beacon of hope in a sea of crypto confusion. It’s a step towards a more regulated and secure future, where investors can trade virtual assets without constantly looking over their shoulders. It’s time to ride off into the sunset of virtual asset regulation, knowing that Hong Kong is paving the way towards a safer and more controlled cryptocurrency frontier.”

Bitverse’s founder Win is also positive and added that his solution would also help to increase trust among users. “We are extremely excited about Hong Kong’s positive stance towards cryptocurrencies and innovation.”

Bitverse is actively building the industry’s first web3 credit wallet, based on a high-security, highly scalable, and low Gas wallet core using MPC+AA technology, along with a web3 open credit protocol built on an AI+Oracle network. The web3 credit protocol, constructed on decentralized trusted network nodes, not only facilitates various project scenarios in acquiring customers quickly and at a low cost but also enhances product competitiveness through structured enhancements. Moreover, the mechanism of “credit mining” enables highly creditworthy users from the real world to earn greater profits, thereby genuinely attracting more B2B and B2C users to participate in the entire decentralized credit value network.

The deeming arrangement introduced under the AMLO offers an opportunity for pre-existing VATPs and proposed licensed individuals to be deemed licensed from June 1, if they meet specific conditions outlined by the SFC. This provision allows for a smooth transition and avoids disruption in the operation of VATPs and the roles of licensed individuals.

The implementation of the new licensing regime and the transitional arrangements demonstrates Hong Kong’s commitment to the virtual asset trading industry. By bringing VATPs under the oversight of the SFC, the government aims to protect investors, enhance market integrity, and mitigate the risks associated with virtual asset trading. The SFC’s supervisory and disciplinary powers, along with the adherence to regulatory requirements, will ensure a more transparent and accountable virtual asset trading environment.

While the new licensing regime is a significant step forward, ongoing monitoring and continuous adaptation of regulations will be essential. The cryptocurrency market is evolving rapidly, and regulatory frameworks must keep pace to address emerging risks and challenges effectively.

Overall, Hong Kong’s new licensing regime for VATPs is a positive development for the virtual asset trading industry. It sets a precedent for other jurisdictions to follow, fostering greater trust and confidence in the market. As the global cryptocurrency landscape continues to evolve, regulatory efforts like these will play. It will be interesting to observe how Hong Kong’s stance on cryptocurrencies unfolds in the coming months and how it affects the local economy and regulatory landscape.

 

Source: https://intpolicydigest.org/hong-kong-s-virtual-asset-trading-regulations-explained/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j

Cryptocurrency firms struggle to find banking partners after US bank collapses- Where to next? Singapore? Switzerland? Hong Kong?

Cryptocurrency firms struggle to find banking partners after US bank collapses- Where to next? Singapore? Switzerland? Hong Kong?

Sources suggest that some cryptocurrency companies have turned to Cross River Bank as their preferred banking partner to address this issue

Recently, there have been reports indicating that cryptocurrency companies are facing challenges when finding banking partners. This issue has arisen following the collapse of two prominent US-based banks, namely Signature Bank and Silvergate Capital. As a result, many cryptocurrency firms struggle to secure banking services, causing significant problems for their operations.

Some cryptocurrency companies have turned to Cross River Bank as their preferred banking partner to address this issue. In particular, Circle Internet Financial Ltd. has moved its business to Cross River Bank from Silicon Valley Bank, where it had held $3.3 billion in assets. This move highlights the importance of finding a reliable banking partner for cryptocurrency companies, as they require access to banking services to conduct their business effectively.

The struggle to find banking partners for cryptocurrency companies underscores the challenges that these firms face as they navigate the fast changing landscape of digital currencies. While some banks are starting to embrace cryptocurrencies and offer banking services to these companies, many are still hesitant to do so. As a result, finding a banking partner that is willing to work with cryptocurrency companies is crucial to their success in the long run.

Where are some feasible countries? What are some challenges that we can foresee?

Switzerland

The collapse has forced the crypto industry to seek new banking partners, with some turning to offshore financial companies like Jewel and others looking to transfer their funds overseas. This has led several digital currency companies to turn to Swiss banks, as Switzerland has established a “Crypto Valley” in the region of Zug, which has favourable regulations and a supportive environment for blockchain and cryptocurrency companies.

Swiss banks are known for their confidentiality and discretion, which is important for the privacy-conscious crypto industry. Swiss banking services also offer a range of products and services that can be customised to the specific needs of crypto firms. This can include access to multiple currencies, secure digital storage, and international transactions.

Swiss banks have a strong reputation for stability and reliability, and the Swiss government has a long history of promoting the country as a financial hub. These factors make Switzerland a popular destination for businesses seeking secure and trustworthy banking partners. The combination of favourable regulations, a supportive environment, and a strong reputation for reliability and confidentiality make Swiss banking a good option for crypto firms.

In addition to Switzerland, several other countries are emerging as favourable locations for digital currency firms.

Singapore

One of these countries is Singapore, which has a well-established financial industry and has been actively exploring blockchain technology in various sectors. Singapore’s regulatory framework for digital currencies is relatively open, and the government has been supportive of blockchain-based businesses, making it an attractive destination for digital currency firms.

Singapore has not forbidden cryptocurrency like some other countries have, which has made it a popular location for crypto firms. In addition, the city-state has a robust financial infrastructure, making it an attractive option for banking. Crypto-friendly regulations: Singapore has taken a positive approach to the cryptocurrency industry, with the Monetary Authority of Singapore (MAS) providing clear guidance on the regulatory framework for crypto companies. In addition, the Payment Services Act was passed in 2019 to regulate digital payment tokens, including cryptocurrencies.

Singapore provides various benefits for crypto firms seeking to establish themselves in the region. The country’s banking system is highly developed and stable, with major global banks such as DBS and UOB operating there, providing a sense of security for crypto firms needing a reliable banking partner. Furthermore, Singapore’s strategic location in Southeast Asia grants easy access to major Asian markets, such as China and India, making it ideal for crypto firms looking to expand their business in the region. In addition, Singapore offers favourable tax policies, including a flat corporate tax rate of 17% and various tax exemptions and rebates, which is attractive for crypto firms seeking to reduce their tax burden.

Moreover, Singapore has a well-recognized reputation as an innovation hub focusing on developing cutting-edge technologies. This creates an innovation-friendly environment that can be particularly enticing for crypto firms searching for a supportive environment to grow and innovate. In summary, Singapore’s strong banking system, access to Asian markets, favourable tax policies, and innovation-friendly environment make it an attractive location for crypto firms looking to establish themselves in the region. Singapore’s well-regulated financial system can provide peace of mind for crypto firms looking to establish long-term banking relationships.

Malta

Another country that is gaining popularity among digital currency firms is Malta, which has established itself as a hub for blockchain and cryptocurrency businesses in Europe. Malta has taken proactive steps to attract digital currency firms, such as introducing a regulatory framework for digital currencies and establishing a government agency to oversee the sector. In addition, Malta has a favourable tax regime for blockchain-based businesses, making it a cost-effective location for digital currency firms.

Malta, an EU member state, has made efforts to attract cryptocurrency businesses, making it an attractive banking option for crypto firms. One reason is that Malta has proactively created a regulatory framework for the cryptocurrency industry. The country’s Virtual Financial Assets Act establishes a clear legal framework for cryptocurrency companies operating in Malta. It establishes a regulatory authority, the Malta Digital Innovation Authority, to oversee the industry and ensure compliance. Malta’s banking system is also stable, unlike the US-based Signature Bank and Silvergate Capital, which recently experienced major bank collapses. This stability can reassure crypto firms looking for a reliable banking partner. As an EU member state, Malta provides access to the EU’s single market, which can be beneficial for crypto firms looking to expand their business in Europe.

Malta’s pro-crypto attitude is another reason crypto firms should consider banking in the country. Malta has positioned itself as a “blockchain island” and has actively promoted the development of the cryptocurrency industry, attracting several major crypto companies to set up shop in Malta. Additionally, Malta offers tax benefits for businesses, including a low corporate tax rate of 35% and a refund system for foreign investors, which can provide additional tax benefits for crypto firms.

Other countries that digital currency firms consider include Gibraltar, Estonia, and Bermuda. Gibraltar has been working to establish itself as a “blockchain hub” and has taken steps to create a regulatory framework for the cryptocurrency industry. The country also offers attractive tax benefits. Liechtenstein: Liechtenstein has taken a proactive approach to regulate the cryptocurrency industry and has established a clear legal framework for the sector. The country also offers attractive tax benefits. Bermuda has also introduced a regulatory framework for digital currencies and has been actively exploring the use of blockchain technology in various sectors.

Challenges

While some countries clearly benefit from this saga, some face some challenges. Hong Kong has long been known as a financial hub in Asia, with a reputation for being friendly and open towards new businesses, including those in the cryptocurrency industry. However, recent banking challenges Hong Kong’s crypto firms face after the closure of Silvergate and Signature banks suggest that the city’s banking system may not be as ready as its government is making it out to be.

One of the biggest challenges Hong Kong’s crypto firms faces is the difficulty opening local bank accounts. According to industry insiders, banks in the city are not keen to serve crypto businesses, making it even harder for these firms to access banking services. This is a significant setback for Hong Kong, aiming to become a virtual asset hub. If the city’s banking system cannot support the needs of crypto businesses, it will be difficult for Hong Kong to achieve this goal.

One reason for the reluctance of banks in Hong Kong to serve crypto businesses may be due to regulatory uncertainty. Despite the government’s push to become a hub for virtual assets, there is still a lack of clear regulations in the space. This can make it difficult for banks to assess the risks associated with serving crypto businesses, leading them to err on the side of caution and avoid these clients altogether. This is not only happening in Hong Kong. It’s important to note that Swiss banks are also cautious when dealing with crypto firms, as cryptocurrencies carry risks and potential for money laundering. Due to regulatory pressure, some Swiss banks have already stopped offering services to crypto firms. Taking a careful stand is essential for the banks.

Another issue is the reputational risk associated with serving crypto businesses. While the cryptocurrency industry has come a long way in terms of legitimacy and mainstream acceptance, some still perceive it as a high-risk, unregulated sector. Banks that serve crypto businesses may be seen as supporting this perception, which could damage their reputation and lead to increased scrutiny from regulators.

The challenges Hong Kong’s crypto firms face highlight the need for the city’s banking system to become more accommodating towards the needs of this industry. While the government has made strides in promoting Hong Kong as a virtual asset hub, more must be done to ensure the city’s banking system is ready to support this goal. Clear regulations and guidance from regulators can help to provide banks with the clarity they need to serve crypto businesses. In contrast, education and outreach efforts can help to address the reputational concerns associated with the industry. Until these issues are addressed, Hong Kong’s ambitions of becoming a virtual asset hub may remain out of reach.

I hope this dilemma is short-term. Hong Kong being a financial hub close to China, would be a big plus for the crypto industry. Not only will we see an influx of Chinese tech talents into Hong Kong, but we will also be seeing huge capital inflows too.

Ending remarks

In conclusion, the regulatory landscape for cryptocurrency is constantly evolving and can vary significantly between countries. While some countries embrace cryptocurrencies and develop favourable regulatory frameworks, others remain sceptical and have introduced strict regulations or outright bans on cryptocurrency trading and related activities. As such, it is vital for cryptocurrency firms to carefully consider the regulatory framework and banking system in each country where they operate or plan to expand into. This includes evaluating the legal and tax implications and the risks and benefits associated with banking in each country.

As the recent struggles of cryptocurrency firms to find banking partners illustrate, it is also important to identify reliable banking partners willing to work with the firm and provide necessary banking services. This may involve conducting due diligence on potential banking partners and assessing their ability to meet the unique needs of cryptocurrency firms.

My humble takeaway message to all is this: While the growth potential of the cryptocurrency industry is significant, firms must navigate the regulatory and banking landscape carefully and strategically to ensure their long-term success. Given the uncertainties, it’s worth noting that each country has its own regulatory framework and banking system. Crypto firms should carefully consider the risks and benefits of banking in each country before making a decision.

by Anndy Lian

 

Source: https://www.financialexpress.com/business/blockchain/cryptocurrency-firms-struggle-to-find-banking-partners-after-us-bank-collapses-where-to-next-singapore-switzerland-hong-kong/3028866/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j

Hong Kong introduces regulatory measures for crypto trading platforms to enhance security

Hong Kong introduces regulatory measures for crypto trading platforms to enhance security

As the global crypto industry continues to grapple with increasing regulatory scrutiny and clampdowns, new hubs for the virtual asset industry are emerging. One such emerging hub is Hong Kong, which recently proposed rules allowing retail investors to trade certain “large-cap tokens” on licensed exchanges, contrasting mainland China’s outright ban on crypto-related transactions.

Based on what I know, The Securities and Futures Commission of Hong Kong has not yet specified which large tokens would be allowed. Still, industry insiders speculate it would likely be Bitcoin and Ether, two of the biggest digital assets by market value.

While China’s clampdown on crypto trading was intended to protect individual investors from speculative activity, the increasing number of bankruptcies and layoffs in the global crypto industry may have justified their actions.

Nevertheless, the crypto industry continues to attract talent and investment, making it hard to imagine Beijing sitting idly while the rest of the world develops new building blocks that could potentially spark a new wave of innovation as big as the current internet itself.

China’s crackdown on crypto trading has led many of its web3 startups to look abroad, with many of them setting up new bases in more crypto-friendly locations like Singapore and Dubai. However, with Hong Kong’s introduction of a more relaxed regulatory environment for cryptocurrencies, some Chinese-founded web3 companies in exile may consider returning home to Hong Kong.

Hong Kong has a long history as a financial hub and can potentially be a laboratory for China’s policymakers to test out blockchain’s potential with some buffer for the nation’s one billion netizens. The city’s proposal stipulates that all centralised 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 proposed requirements cover key areas such as safe custody of assets, know-your-client, conflicts of interest, cybersecurity, accounting and auditing, risk management, anti-money laundering/counter-financing of terrorism, and prevention of market misconduct.

In addition to ensuring suitability in onboarding clients and token admission, the other key proposals relate to token due diligence, governance, and disclosures.

In other words, centralised crypto exchanges must ban Hong Kong IP addresses until they obtain the relevant permits to operate in the city. The regulatory requirements are currently open for consultation until March 31, and the new licensing regime will take effect on June 1.

This move by Hong Kong is strategic, and it can attract crypto companies and investments to the city. Implementing clear regulatory frameworks would help the industry gain mainstream adoption and bring in more institutional investors.

The crypto industry has come a long way since the inception of Bitcoin over a decade ago. With the emergence of DeFi (Decentralised Finance) and NFTs (Non-Fungible Tokens), the industry has grown significantly, and this growth is expected to continue. However, to achieve its full potential, it needs to address its regulatory concerns.

The introduction of clear regulatory frameworks can help crypto companies gain mainstream acceptance, bring in more institutional investors, and pave the way for new and innovative use cases for blockchain technology. Hong Kong’s move towards a more relaxed regulatory environment for cryptocurrencies is a significant step in the right direction, and I hope that other countries will follow suit.

AML crypto regulations in Hong Kong

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 are subject to a number of AML, CTF, and investor protection obligations. These include:

  • Customer Due Diligence (CDD): VASPs must conduct CDD on their customers, which includes identifying and verifying the identity of the customer, the beneficial owner, and any other person who exercises control over the customer. VASPs must also assess and understand the nature and purpose of the business relationship with the customer.
  • Ongoing monitoring: VASPs must monitor their customers’ transactions on an ongoing basis to ensure that they are consistent with their knowledge of the customer, the customer’s business, and the risks associated with the customer.
  • Record-keeping: VASPs must maintain adequate records of their customers, their transactions, and their risk assessments. These records must be kept for a period of at least five years.
  • Reporting: VASPs are required to report suspicious transactions to the Joint Financial Intelligence Unit (JFIU) of Hong Kong. Suspicious transactions include those that are inconsistent with the customer’s profile, those that have no apparent economic or lawful purpose, or those that involve the proceeds of crime.
  • Investor protection: VASPs must also put in place measures to protect their customers’ assets. This includes measures such as segregation of customer assets from the VASP’s own assets and insurance against losses.
  • Penalties for non-compliance: VASPs that fail to comply with the new regulations are subject to a range of penalties, including fines, suspension or revocation of their license, and criminal liability. Individuals who are found guilty of money laundering or terrorist financing may face imprisonment of up to 14 years and fines of up to HK$5 million.

The new regulations also provide for the imposition of sanctions by the United Nations Security Council or by Hong Kong in respect of breaches of international sanctions.

Licensing and registration requirements for VASPs in Hong Kong

Anyone who engages in a virtual asset exchange business in Hong Kong must apply for a license with the SFC. The AML/CTF Amendment Bill 2022 also introduced regulations for VASPs to comply with the Crypto travel rule.

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.

Complying with the crypto travel rule in Hong Kong

The crypto travel rule will be effective in Hong Kong as of June 1, 2023. The new regulatory regime will provide industries with a grace period to prepare for compliance until that date. In Hong Kong, Travel Rule requirements apply regardless of the transaction amount.

The scope of data to be exchanged varies depending on the threshold of the transaction. For virtual assets that amount to HK$8,000 or more, the following information needs to be shared: name, account number, and address of the originator, as well as the beneficiary’s name and account number. For virtual assets that amount to less than HK$8,000, only the name and account number of the originator and beneficiary are required.

There are no differences in customer personally identifiable information (PII) requirements for cross-border transfers and transfers within Hong Kong. However, for wire transfers, the information recorded must include the number of the originator’s account or a unique reference number assigned to the wire transfer by the financial institution.

Non-custodial or self-hosted wallet transactions do not have any specific requirements in Hong Kong. The AML/CTF Amendment Bill 2022 defines virtual asset transfers subject to Crypto Travel Rule requirements as transactions for transferring virtual assets carried out by an institution on behalf of an originator, with a view to making the virtual assets available to the originator or another person at an institution, which may be the ordering institution or another institution.

In conclusion, Hong Kong’s proposal to allow retail investors to trade large-cap tokens on licensed exchanges is a significant development for the global crypto industry.

While China’s crackdown on crypto trading was aimed at protecting individual investors from speculative activity, the regulatory framework proposed by Hong Kong is more relaxed and can potentially attract more crypto companies and investments to the city. The implementation of clear regulatory frameworks would help the industry gain mainstream adoption and bring in more institutional investors.

I am looking forward to seeing a striking balance between the both.

Source: https://e27.co/hong-kong-introduces-regulatory-measures-for-crypto-trading-platforms-to-enhance-security-20230320/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j