Hong Kong’s SFC Enacts Regulatory Framework for Virtual Asset Trading

  • Most respondents welcomed the proposed requirements.
  • Failure to comply will result in the orderly closure of businesses.

The Securities and Futures Commission (SFC), an independent statutory body charged with regulating the securities and futures markets in Hong Kong, has released its consultation conclusions on the proposed regulatory requirements for virtual asset trading platform operators licensed by the SFC. The SFC received 152 written submissions during the consultation, including feedback from industry associations, market participants, and other stakeholders.

According to SFC, most respondents welcomed the proposed requirements, with some seeking further clarifications. The SFC has modified and clarified the proposed regulations in response to the feedback received.

One of the key aspects of the proposal is the allowance for licensed trading platform operators to serve retail investors, which received significant support from the respondents. The SFC will implement suitability checks during onboarding, enhanced token due diligence, improved governance, admission criteria, and disclosures to protect these investors.

Julia Leung, the Chief Executive Officer of the SFC, emphasized the importance of providing clear regulatory expectations to promote responsible development. The comprehensive regulatory framework in Hong Kong follows the principle of “same business, same risks, same rules” to ensure robust investor protection and manage key risks, fostering sustainable growth and supporting innovation in the industry.

Effective June 1, 2023, the guidelines for virtual asset trading platform operators will outline various requirements, including safe custody of assets, segregation of client assets, avoidance of conflicts of interest, and cybersecurity standards. The SFC will provide additional guidance on the new regulatory requirements, including license application procedures and transitional arrangements.

The SFC encourages virtual asset trading platform operators willing to comply with the regulatory standards to apply for a license. According to the SFC, those who choose not to do so are expected to proceed with an orderly closure of their business in Hong Kong. Additionally, the SFC will continue collaborating with the Investor and Financial Education Council to educate investors about the risks of trading on unregulated platforms.

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