Hong Kong has been making headlines in the crypto space since it announced it would allow retail crypto trading in May 2023. On June 1, Hong Kong implemented new crypto regulations to license exchanges, with the Hong Kong Securities and Futures Commission (SFC) marking the occasion by issuing a wave of regulatory guidance for Virtual Asset Trading Platforms (VATP) operators. It is important to note that while cryptocurrencies have been banned in mainland China since 2021, Hong Kong has its own financial system and regulatory bodies.
On June 13, an explanation of these regulations written by Gilbert Ng – founder of consulting firm Mura and attorney at the Supreme Court of the Hong Kong Special Administrative Region – and Chris Lee – founder and partner of TKX capital – was translated and published by Wu Blockchain.
What are these new regulations, what do they mean and how will they affect the growing number of crypto companies looking to move to Hong Kong as their base of operations? We break it all down.
SFC accepts applications from crypto exchanges
Cryptocurrency exchanges are now required to obtain a license from the SFC to trade and market to consumers in Hong Kong. While the SFC begins reviewing permit applications, pre-existing exchanges with major operations in the city will be given a one-year grace period. During this time, they can adapt their activities to the new regulations or decide to withdraw from the market.
A green light for operations will only be granted by the SFC to companies that demonstrate “real operations and real business practices”. This fee is exclusive to non-securities trading platforms.
What are “real operations and real business practices?”
What are real operations and practices? The SFC offers several determining factors, including whether the platform is based in Hong Kong, whether it is operated by staff in the city, or whether it has a physical office there, among other things.
According to the translation of Wu Blockchain, The SFC defines operations in Hong Kong based on whether the exchange is “actively marketing to the public in Hong Kong”. Regardless of its place of incorporation, if an exchange promotes its services to the public in Hong Kong, it must obtain a licence.
This may include various activities, such as regular contact with Hong Kong investors or the public, advertising services to the Hong Kong public through mass media campaigns targeting Hong Kong investors, and participation in Internet activities targeting Hong Kong investors.
regulated individuals
The requirements also highlighted the need for personnel, called “regulated individuals”, to operate these crypto platforms. For example, the individuals may be a cohort consisting of directors, responsible officers, and managers.
These Regulated Persons will undergo a rigorous “fit and proper” assessment by the SFC, where they must demonstrate their professional experience, whether that experience is in Hong Kong or any other jurisdiction.
If you plan to register or apply, please read the full license terms in the official SFC handbook. The evolving landscape of cryptocurrency regulation, particularly in financial hotspots such as Hong Kong, is a testament to the growing relevance and adoption of digital assets worldwide. With Hong Kong moving away from mainland China’s tough stance on cryptocurrencies, it signals the city’s desire to establish itself as a global leader in this sector.