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Hong Kong crypto regulation | Proposed decision in first cryptocurrency related trial mandatory licensing and supervisory regime for Virtual Asset Service Providers (VASPs)

Published on 09 June 2021

In November 2020, the Financial Services and Treasury Bureau (FSTB) issued a public consultation paper proposing a new mandatory licensing and supervisory regime for all VASPs under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (AMLO).

The new regime would require the licensing of virtual asset exchanges that are not required to be licensed under the Securities and Futures Ordinance because they trade virtual assets (such as Bitcoin and Ether) which are not within the statutory definitions of “securities” or “futures contracts”. The new regime would be administered and enforced by Hong Kong’s Securities and Futures Commission which will be given the necessary powers under the AMLO.

The new licensing conditions, including know-your-client and due diligence requirements, would be comparable to those currently applicable to licensed securities brokers and automated trading venues. The proposed regime would help to tighten cryptocurrency regulation in Hong Kong (which is currently a voluntary opt-in regime) to mitigate money laundering and terrorist financing risks and ensure compliance with international obligations.

Looking ahead, market participants are advised to keep abreast of developments in this area since the FSTB is contemplating an expansion of the mandatory licensing regime to cover more forms of virtual asset activities where the need arises in the future.