The Securities and Futures Commission (SFC) announces that it has granted the first licence to a virtual asset trading platform in Hong Kong. The platform will only serve professional investors under the close supervision of the SFC (Note 1) and will be subject to tailor-made requirements similar to those which apply to securities brokers and automated trading venues (Note 2).
The SFC is one of the first major jurisdictions to introduce a comprehensive framework for the regulation of virtual asset trading platforms (Note 3) and its approach is consistent with the recommendations of international standard-setting bodies (Note 4). Regulators in other major markets have also announced plans to regulate virtual asset trading to address concerns about anti-money laundering and consumer protection.
“Our regulatory approach to virtual assets aims to protect investors while fostering the healthy and orderly development of this emerging industry,” said Mr Ashley Alder, the SFC’s Chief Executive Officer. “When licences are granted to those trading platforms which choose to be regulated, investors in Hong Kong will be able to easily distinguish between platforms which are properly regulated and those which are not.”
The SFC will continue its efforts to provide a clear and well-defined regulatory environment for the development of the Fintech industry. In a consultation launched in November, the Government proposed a new legislative framework where the SFC would be able to regulate all centralised virtual asset exchanges, including those that only trade types of virtual assets which currently fall outside the SFC’s jurisdiction (Note 5).
1. The platform is licensed for Type 1 (dealing in securities) and Type 7 (providing automated trading services) regulated activities. As part of the licensing conditions, the licensee must only provide services to professional investors. The term “professional investor” is defined in the Securities and Futures Ordinance and the Securities and Futures (Professional Investor) Rules.
2. See the Terms and Conditions for Virtual Asset Trading Platform Operators.
3. In the Position paper, Regulation of virtual asset trading platforms, dated 6 November 2019, the SFC announced a regulatory framework for virtual asset trading platforms which offer trading of at least one security token. The framework sets out robust standards in the areas of custody of assets, cybersecurity, know-your-client, anti-money laundering, market surveillance, accounting and auditing, product due diligence and risk management.
4. See the International Organization of Securities Commissions’ February 2020 Final Report, “Issues, Risks and Regulatory Considerations Relating to Crypto-Asset Trading Platforms”.
5. See “Government launches consultation on legislative proposals to enhance anti-money laundering and counter-terrorist financing regulation”, a press release published by the Government of the Hong Kong Special Administrative Region on 3 November 2020. Interested parties are invited to submit their comments to the Financial Services and the Treasury Bureau on or before 31 January 2021.