Hong Kong’s licensing regime for virtual asset service providers to take effect in March 2023.

By Simon Hawkins, Adrian Fong, and Shirley Wong

On 24 June 2022, the Hong Kong government gazetted the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022 (Amendment Bill). The Amendment Bill proposes changes to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Chapter 615) (AMLO) in order to introduce a licensing regime for virtual asset service providers (VASP) and impose statutory anti-money laundering and counter-terrorist financing (AML/CTF) obligations on the VASP sector.

To recap, in May 2021, the Financial Services and the Treasury Bureau issued consultation conclusions (Consultation Conclusions) on implementing a regulatory regime for VASPs (see Latham’s blog post). The proposed amendments to the AMLO, as set out in the Amendment Bill, have been prepared based on the Consultation Conclusions.

Under the proposed licensing regime for VASPs, any person (i) operating a virtual asset exchange in Hong Kong, i.e., an electronic facility where virtual assets are purchased and sold, and where client money or client virtual assets comes into possession of the person providing the service (VA Exchange); or (ii) actively marketing the service of a VA Exchange to the Hong Kong public, is required to be licensed with the Securities and Futures Commission (SFC).

As part of the licensing framework, the VA Exchange will be subject to AML/CFT and investor protection obligations. The SFC is expected to issue further guidance and requirements applicable to VA Exchanges in areas such as financial resources, client assets, and trading policies in the near future.

The new regime is anticipated to come into effect on 1 March 2023. There will be a transitional period of nine months (i.e., until 1 December 2023) for operators of VA Exchanges to apply to the SFC for a licence. VA Exchanges looking to obtain a licence should begin to assess how to comply with the licensing framework and prepare for the new regime.

This Client Alert summarises the proposed licensing regime for VA Exchanges and details the general licensing requirements and investor protection measures to be put in place. The Client Alert also sets out the key issues that trading platforms, marketplaces, and GameFi operators should consider in preparation for the commencement of the regime.