Oversight: SFC Consultation on Virtual Asset Trading Platforms

Introduction

On 20 February 2023, the Securities and Futures Commission of Hong Kong (SFC) launched its Consultation Paper on the Proposed Regulatory Requirements for Virtual Asset Trading Platform Operators Licensed by the Securities and Futures Commission (Consultation Paper). The Consultation Paper follows the passage of the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill (Bill) by the Legislative Council in December 2022. The Bill will introduce a new licensing regime for all centralized virtual asset trading platforms (VATPs) carrying on their businesses in Hong Kong or actively marketing their services to Hong Kong investors - requiring them to be licensed and regulated by the SFC, whether they provide trading services in security or non-security tokens (AMLO VASP Licensing Regime).

Currently, only centralized VATPs which provide trading services in at least one security token are governed by the Securities and Futures Ordinance (SFO) under an opt-in regulatory regime. This was introduced by the SFC in 2019 through its position paper on regulation of VATPs (SFO Licensing Regime). The activities of existing VATP operators which only provide trading services in non-security tokens fall outside the jurisdiction of the SFC as the SFO only regulates “securities” as defined. Upon commencement of the AMLO VASP Licensing Regime, VATPs which enable clients to trade security tokens will continue to be governed by the SFO requirements while VATPs which only provide trading services in non-security tokens will fall under the AMLO VASP Licensing Regime. It is proposed that the AMLO VASP Licensing Regime will come into effect on 1 June 2023, with transitional arrangements for pre-existing VATP operators. Interested parties should submit their response to the Consultation Paper by 31 March 2023.

This Oversight provides an overview of the key proposed licensing and regulatory modifications and transitional arrangements in relation to the new AMLO VASP Licensing Regime. It first discusses the requirements of the draft Guidelines for Virtual Asset Trading Platform Operators (VATP Guidelines) and then it discusses the transitional arrangements for different type of VATP operators. It finishes with a discussion of the practical implications of the proposed changes.