SFC concludes consultation on regulation of virtual asset trading platforms

On 23 May 2023, the Securities and Futures Commission (the "SFC") published conclusions (the "Consultation Conclusions") to its consultation launched in February 2023 on the proposed regulatory requirements for virtual asset trading platform ("VATP") operators.

Please refer to our publication in February 2023 here for more information about the Consultation.


On 23 May 2023, the Securities and Futures Commission (the "SFC") published conclusions (the "Consultation Conclusions") to its consultation launched in February 2023 on the proposed regulatory requirements for virtual asset trading platform ("VATP") operators. Please refer to our publication in February 2023 here for more information about the Consultation.

The Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022 ("AMLO") introduced a licensing regime for VA trading platforms ("VASP regime"), which came into force on 1 June 2023. The VASP regime mandates that all VATPs which carry out business in Hong Kong or actively market to Hong Kong investors must be licensed with the SFC. The SFC launched the Consultation to finalise the licensing requirements and introduce conduct requirements applicable to licensed VATP operators. The Consultation Conclusions set out the SFC's response to market comments and the finalised Guideline for Virtual Asset Trading Platform Operators ("VATP Guidelines"), which are additions or variations to the existing requirements applicable to platform operators currently licensed under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) ("SFO").

We discuss below some key requirements/changes.

Retail access to licensed VATPs

The SFC noted strong support in the market for allowing licensed VATPs to provide services to retail investors. Pursuant to the Consultation Conclusions, licensed VATPs may grant retail investors access to a limited set of virtual assets subject to meeting certain investor-protection requirements and admission thresholds. Below are the key requirements in this respect:

(i) Knowledge assessment of retail investors: Licensed VATP operators must conduct a holistic assessment of a retail investor's understanding of the nature and risks associated with the relevant virtual asset. This knowledge assessment requirement applies equally to intermediaries engaging in virtual asset-related activities. Further amendments will be introduced to ensure alignment across the regulations for all categories of intermediaries.

(ii) Token admission and review committee: Licensed VATPs must set up a token admission and review committee, which should include at least "the corresponding managers-in-charge" of the VATP operators. Additionally, licensed VATPs must adopt internal policies to deal with conflicts of interest involving committee members and the VATP operator.

(iii) Disclosure obligations: Many respondents raised concerns over the potentially onerous burden of ensuring accuracy of all product information disclosed. Pursuant to the Consultation Conclusions, VATP operators will only be required to take all reasonable steps to ensure the product specific information they disclose is not false, biased, misleading, or deceptive.

(iv) Token due diligence and admission criteria: Under the revised VATP Guidelines, licensed VATP operators must take all reasonable steps to ensure virtual assets made available on the platform are highly liquid and do not breach the prospectus regime under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) or the investments regime under Part IV of the SFO. All virtual assets made available to retail investors must also satisfy the "large-cap" criteria, i.e., the virtual asset must be included in a minimum of two acceptable indices issued by at least two different index providers.

(v) Stablecoins not for retail trading: Licensed VATP operators must not admit stablecoins for retail trading before the Hong Kong Monetary Authority's proposed regulatory arrangements for crypto-assets and stablecoins have been implemented.

(vi) Gifts: The VATP Guidelines prohibit licensed VATP operators from offering gifts to their clients in return for trading on their platforms, except for discounts on fees or charges.

Insurance / compensation arrangement

In terms of insurance requirements, a combination of third-party insurance and funds of the platform operator or a group company set aside on trust and designated for the purpose of covering such risks is now permitted.

Furthermore, the minimum level of insurance coverage for client virtual assets in "cold"1 storage is set at 50%, while it remains at 100% for client virtual assets held in "hot" and other types of storage.

Prohibition on trading in virtual asset derivatives

Under the revised VATP Guidelines, licensed VATP operators are prohibited from offering, trading, or dealing in virtual asset futures contracts or related derivatives. The SFC will conduct a separate review of virtual asset derivatives in due course. This illustrates the step-by-step approach of the SFC, and its desire to limit exposure of retail investors to the more complex and riskier virtual assets until all the issues have been thought through and a conclusion reached on whether to grant access.

AML/CFT requirements

Licensed VATPs must observe certain anti-money laundering requirements set out in the two guidelines on anti-money laundering and counter-financing of terrorism ("AML Guidelines")2, such as conducting due diligence and ongoing monitoring of virtual asset transfer counterparties, complying with cross-border correspondent relationship requirements, and applying heightened screening processes to transfers to, or from, unhosted wallets.

Application process

The Consultation Conclusions made it clear that the VASP regime only covers VATPs that "are centralized and operate in a similar manner to traditional automated trading venues licensed under the SFO." This means that the provision of virtual asset services without an automated trading engine and ancillary custody services, such as over-the-counter virtual asset trading and virtual asset brokerages, will not fall under the scope of AMLO.

The SFC will adopt a streamlined application process, which means that only a single consolidated application will be required for a dual licence application under the SFO and the AMLO. Noting the shortage of human capital with the requisite experience in this area, the SFC will allow an individual to be approved as a responsible officer under both the AMLO and the SFO for these purposes.

Timing and conclusion

The revised VATP Guidelines, AML Guidelines and Disciplinary Fining Guidelines took effect on 1 June 2023. The SFC will provide further guidance on the implementation of the VASP regime in due course, but for now, all market players are having to rapidly adjust to a new dawn in the regulation of virtual assets in Hong Kong. This has manifested itself in the form of requests for customers to comply with the new AML and client due diligence requirements. This may lead to loss of some customers, if they are unwilling or unable to meet the new requirements, but at the very least VATP operators now know where they stand.



Authored by Andrew McGinty, Mark Parsons, and Katherine Tsang.


1  "Cold" refers to assets which are kept in a cold i.e., offline wallet and hence are less vulnerable to cyber-theft. "Hot" storage refers to those kept in a wallet accessible online.
2 See Appendices B and C to the Consultation Conclusions. The AML Guidelines include the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations and SFC-licensed Virtual Asset Service Providers), and the Prevention of Money Laundering and Terrorist Financing Guideline issued by the Securities and Futures Commission for Associated Entities of Licensed Corporations and SFC-licensed Virtual Asset Service Providers.



This website is operated by Hogan Lovells International LLP, whose registered office is at Atlantic House, Holborn Viaduct, London, EC1A 2FG. For further details of Hogan Lovells International LLP and the international legal practice that comprises Hogan Lovells International LLP, Hogan Lovells US LLP and their affiliated businesses ("Hogan Lovells"), please see our Legal Notices page. © 2024 Hogan Lovells.

Attorney advertising. Prior results do not guarantee a similar outcome.