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Lynn Johannson, President of E2 Management Corporation and Catalyst for THE Collaboration
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Consultation Paper for Comment: Hong Kong SFC Sets the Stage for Retail Access to Crypto Platforms
Herbert Smith Freehills | March 1, 2023
A major virtual asset (VA) regulatory milestone occurred last week when the Hong Kong Securities and Futures Commission (SFC) published its much anticipated Consultation Paper on the proposed Regulatory Requirements for Virtual Asset Trading Platform Operators Licensed by the Securities and Futures Commission (Consultation Paper).
- Among other things, the SFC proposes to allow all types of investors, including retail, to access VA trading platforms (VATP) provided the VATP comply with a range of robust investor protection measures.
- The Hong Kong Financial Secretary also announced in his 2023-24 Budget speech that he will establish and lead a task force on VA development to provide recommendations on the sustainable and responsible development of the sector. With the Consultation Paper and proposed guidelines (see below), which run to over 350 pages, the SFC is seeking to strike a balance between investor protection and market development.
FFOCN23: VIP Lunch & Learn: Meet King Leung, Head of Fintech, Invest Hong Kong on March 7 in Toronto
- VASP licensing regime and draft VATP guidelines
- The new licensing regime for virtual asset service providers (VASPs) under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) will come into effect on 1 June 2023 (VASP Licensing Regime). As a result, all centralised VATP carrying on business in Hong Kong, or actively marketing their services to Hong Kong investors, will need to be licensed by the SFC.
- The Consultation Paper sets out the proposed regulatory requirements for VATP operators, including draft Guidelines for Virtual Asset Trading Platform Operators (VATP Guidelines) that cover both licensing and conduct requirements and are based on the existing regulatory requirements applicable to VATP operators licensed under the Securities and Futures Ordinance (SFO) and the Terms and Conditions for VA Trading Platform Operators (VATP Terms and Conditions). However, certain modifications have been made to take into account feedback received from the industry.
- Further details on the VASP Licensing Regime are provided here.
- From 1 June 2023, all VATP operators, whether licensed under the SFO and/or the AMLO, will be subject to the VATP Guidelines.
- A few key takeaways (lots more in full article):
- Allowing retail access to eligible large-cap VAs – Licensed VATP operators may provide trading services to retail investors, provided that the VAs offered are “eligible large-cap VAs” (ie, VAs which are included in at least two “acceptable indices” issued by at least two independent index providers). Licensed VATP operators must seek the SFC’s advance approval before admitting VAs which would be made available to retail clients.
- Token due diligence and admission criteria – Before admitting VAs for trading, licensed VATP operators must ensure that the VAs comply with the general token admission criteria.
- Governance – Licensed VATP operators should set up a token admission and review committee to govern the criteria for VA to be admitted for trading, and to make final decisions as to whether to admit, halt, suspend and withdraw a VA for client trading. Where VAs are made available to professional investors only, SFC approval will not be required where a decision is made to add or remove such VAs, and only advance notification will be required.
See: Hong Kong’s Finance Regulator Says ‘Blocks are Ready’ to Grow Digital Asset Ecosystem
- Respond to Consultation Paper: The Consultation Paper forms part of the Hong Kong Government’s policy towards developing a vibrant VA sector and ecosystem in Hong Kong. For additional information, please refer to our December, November and June 2022 briefings.
- Interested parties should respond to the Consultation Paper by 31 March 2023.
Continue to the full article --> here
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