Hong Kong’s SFC accepts four license applications from virtual asset trading platforms
The Hong Kong Secretary for Financial Services and the Treasury, Mr Christopher Hui, and the Securities and Futures Commission (SFC) today issued a joint reply to questions regarding the licensing of virtual asset trading platforms.
Since the launch of the voluntary opt-in regime, the SFC has officially accepted four license applications from virtual asset trading platorms for review. The SFC granted the first licence to a platform operator in December 2020, and is currently considering the other applications.
The regulator notes that it does not envisage any limit on the number of licences it expects to grant.
Let’s recall that, in view of the development of virtual assets (VA), the SFC announced a conceptual framework in November 2018 for the regulation of VA trading platforms in Hong Kong. Following exploratory discussion with market operators on regulatory requirements, the SFC issued a position paper in November 2019 setting out a licensing framework for platforms which offer trading of securities-type VAs or tokens (voluntary opt-in regime).
The voluntary opt-in regime only applies to those platforms which offer trading services involving at least one VA with securities features. Platforms solely trading non-securities VAs are not covered.
Under the voluntary opt-in regime, any platform operator who is interested in applying for a licence may submit an application to the SFC. In vetting applications, the SFC will consider factors including the business model of the applicant, whether the applicant can meet the “fit-and-proper test” and whether the applicant is capable of meeting the regulatory requirements that are comparable with those applicable to licensed securities brokers and automated trading venues.
In addition, having regard to the nature and risks of VAs, the SFC will also consider an applicant’s competence in areas including custody of assets, cybersecurity, customer due diligence, anti-money laundering, prevention of market manipulation and abuse, and product due diligence.
A licensed platform operator will be subject to the supervision of the SFC and required to observe the licensing conditions. Key licensing conditions include requirements that the platform operator can only offer services to professional investors, must impose stringent criteria for the inclusion of VAs to be traded on its platform, and that the platform operator can only provide services to clients with sufficient knowledge of VAs.
As with other licences granted by the SFC, a licence granted under the voluntary opt-in regime does not have a specified term and remains valid until it is revoked.