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Hong Kong’s Balancing Act: Innovation and Investor Protection

Hong Kong aims to balance innovation with investor protection through its guidelines on virtual asset trading platforms (VATPs).

The Scope of the Regulation

New regulations in the virtual assets space were first introduced in June 2023. The legislation applies to all centralised (existing and new) VATPs operating in Hong Kong, regardless of whether they deal with security tokens or not.

The Impact of the Regulation

With the legislation, platforms face a dual licensing regime. To operate, they need licenses from both the Securities and Futures Commission (SFC) under the Securities and Futures Ordinance (SFO) and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). Applications for both can be done at the same time.

The Details to Know for VATPs

The VATPs must adhere to the following:

  • Know-Your-Client (KYC/AML/CFT): Stringent customer verification and anti-money laundering measures must be carried out before onboarding retail investors.
  • Secure safe custody of client assets.
  • Maintain measures to prevent market manipulation and abuse.
  • Platform governance: The platforms must provide robust risk management, cybersecurity, and conflict of interest policies.
  • Maintain transparency.
  • License applications must be submitted on or before 31st May 2024.

By understanding and adhering to these regulations, VATPs can operate in the Hong Kong market, fostering a more secure and trustworthy environment for investors.

Please contact us for more information and/or assistance with all legal matters.

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