Hong Kong’s virtual asset regulation evolution and a practical guide to license applications

(PDF document obtained by private message)

Contents

Introduction: Embracing change, a new era of virtual asset regulation in Hong Kong

Part I: The Evolution of Hong Kong’s Virtual Asset Regulatory Framework

• 1. Early Exploration and Risk Warning (2017-2018)
• 2. The regulatory framework for security tokens (STOs) was initially established (2019)
• 3. Virtual Asset Trading Platform (VATP) Regulatory Trial and Improvement (2019-2022)
• 4. The advent of the era of comprehensive supervision and the intensive introduction of policies (2023 to present)
• 5. The formation of a dual-track regulatory structure: synergy between the SFC and the HKMA
• Summary of key points in Part I

 

Part II: In-depth analysis of supervision in core areas

• 1. Security Token Offering (STO) and Real World Asset (RWA) Tokenization Regulation
• 2. Stablecoin Regulatory Framework
• 3. Virtual Asset Trading Platform (VATP) licensing system and operating requirements
• 4. Virtual asset fund management and distribution supervision
• 5. Over-the-counter (OTC) regulatory trends and prospects
• Summary of key points in Part II

 

Part III: Practical Guide to Core License Application

• 3.1 Practical Guidelines for Applying for Virtual Asset Service Provider License (VASP License, Including Trading Platform Business)
• 3.2 Practical Guidelines for Upgrading/Application for Category 9 Regulated Activities (Asset Management - Virtual Assets) License (VA Asset Management License No. 9)
• 3.3 Practical Guidelines for Application for Stablecoin Issuer License (Based on the Stablecoin Regulations)

 

Part 4: OTC regulatory vacuum and future prospects

• 4.1 OTC regulatory vacuum period: discussion on transitional operation path
• 4.2 Outlook on the regulatory trends of virtual assets in Hong Kong
• 4.3 Conclusion of future-oriented compliance strategy recommendations: Seize the opportunities of virtual assets in Hong Kong and move forward in a compliant and steady manner

Conclusion: Seize the opportunities of virtual assets in Hong Kong and move forward in a compliant and steady manner

 

Introduction: Embracing change, a new era of virtual asset regulation in Hong Kong

Hong Kong, as a prestigious international financial center, has shown its strategic ambition to actively embrace change and strive to become a global leading virtual asset center in the context of the global wave of virtual assets and Web3.0. Virtual assets, an emerging thing that combines cutting-edge technology and financial innovation, have a regulatory framework that is of vital importance to maintaining the healthy development of the market, effectively protecting the rights and interests of investors, stimulating the vitality of financial innovation, and even consolidating Hong Kong's position as an international financial center. A clear, robust and forward-looking regulatory environment is the key to attracting high-quality projects, funds and talents.

This article aims to systematically sort out the policy evolution of the Hong Kong SAR Government, especially the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) in the field of virtual asset regulation. We will deeply analyze the regulatory framework and specific requirements of core areas such as security tokens (STO), real-world asset tokenization (RWA), stablecoins, virtual asset trading platforms (VATP), virtual asset fund management, and Hong Kong OTC vacuum period transition plan. More importantly, this article will provide market participants, especially virtual asset-related companies committed to compliant operations in Hong Kong, with detailed application and practical guidance for key licenses (including VASP license, VA asset management license No. 9, trust license and stablecoin issuer, MSO license). We strive for professionalism, timeliness and practicality of the content, and hope to provide valuable reference for colleagues in the industry on the journey of virtual assets in Hong Kong.

 

Core Value Summary:

• Hong Kong's strategic positioning:
  
  Actively build and strive to become a hub for global virtual asset innovation and compliance.
• The core objectives of supervision are:
  
  While encouraging financial innovation, we will effectively manage risks, protect investors and maintain financial stability.
• The core value of this article:
  
  We provide a comprehensive overview of Hong Kong’s virtual asset regulatory policies, supplemented by detailed practical guidance on key license applications, to help you gain insight into regulation and move forward in compliance.

 

Part I: The Evolution of Hong Kong’s Virtual Asset Regulatory Framework

Hong Kong's regulation of virtual assets did not happen overnight, but went through a process from initial exploration, risk warnings to the gradual construction of a systematic and comprehensive regulatory framework. The Securities and Futures Commission (SFC) of Hong Kong played a leading role in this process and actively collaborated with other regulatory agencies such as the Hong Kong Monetary Authority (HKMA) to jointly shape the current multi-level and wide-coverage regulatory landscape. This evolution reflects the characteristics of regulators' gradually clearer thinking, expanding coverage, and increasingly mature regulatory measures when responding to emerging technologies and market developments.

 

Key milestones in Hong Kong’s virtual asset regulation

▶September 2017：SFC issued its first statement on ICO, stating that tokens with securities characteristics are regulated by the Securities and Futures Ordinance

▶ November 2018: SFC launches regulatory sandbox to allow companies to test fintech innovation projects related to virtual assets

▶ November 2019：SFC issued a statement on the issuance of security tokens, and the regulatory framework for security tokens (STO) was initially established

▶ November 2019：SFC releases position paper on virtual asset trading platforms and launches voluntary licensing system

▶ End of 2022: The Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022 is submitted to the Legislative Council for deliberation

▶ June 2023, 6：The Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Regulations 2022 officially came into effect, and the mandatory licensing system for VASPs was established

▶ November 2023：SFC issues circular on tokenization of approved investment products, regulating RWA tokenization

▶ November 2023SFC issues circular for fund managers on RWA exposure

▶ Early 2025：SFC releases "ASPI-Re" regulatory roadmap to promote virtual asset innovation and regulation

▶ June 2025, 5: The Stablecoin Bill passed the third reading and officially came into effect, with HKMA leading the implementation

 

1. Early Exploration and Risk Warning (2017-2018)

With the rise of cryptocurrencies such as Bitcoin and the craze for initial coin offerings (ICOs), the SFC made its first statement on ICOs in September 2017, stating that if the tokens issued by ICOs have the attributes of "securities", they may be regulated by the Securities and Futures Ordinance. This statement marks the initial stance of Hong Kong regulators on virtual assets, emphasizing the regulatory principle of "substance over form". Since then, the SFC has continued to pay attention to the operations of virtual asset fund managers and trading platforms, and launched a regulatory sandbox in 9, allowing companies to test their fintech innovation projects, including virtual asset-related businesses, in a controlled environment.

 

2. The regulatory framework for security tokens (STOs) was initially established (2019)

On March 2019, 3, the SFC issued the "Statement on Security Token Offerings" (hereinafter referred to as the "STO Statement"), which is an important milestone in the history of virtual asset regulation in Hong Kong. The STO Statement clearly states that security token offerings (STOs) with traditional securities attributes will be regarded as "securities" under the Securities and Futures Ordinance, and therefore need to comply with the existing regulatory framework for securities issuance and trading. Specifically, any intermediary that promotes or distributes such tokens must hold a Type 28 (Securities Trading) regulated activity license issued by the SFC, and STOs can generally only be issued to professional investors. This move provides initial guidance for the compliant development of STOs in Hong Kong, and also reflects the SFC's intention to incorporate virtual asset innovation into the existing mature regulatory system, aiming to prevent ordinary investors from suffering significant losses due to the complexity of tokenized products.

 

3. Virtual Asset Trading Platform (VATP) Regulatory Trial and Improvement (2019-2022)

Following the STO announcement, the SFC issued a position paper on virtual asset trading platforms in November 2019, introducing a voluntary licensing system. Under this framework, platforms applying for licenses are required to place their security token trading business under the supervision of the SFC and comply with strict investor protection, anti-money laundering (AML) and counter-terrorism financing (CFT) requirements. However, the limitation of this voluntary system is that it fails to cover all VATPs operating in Hong Kong, especially those platforms that only trade non-security tokens. In order to fill this regulatory gap and promote more comprehensive market supervision, the Anti-Money Laundering and Terrorist Financing (Amendment) Bill 11 was submitted to the Legislative Council for deliberation at the end of 2022, laying the legal foundation for the subsequent establishment of a mandatory licensing system for VATPs.

 

4. The advent of the era of comprehensive supervision and the intensive introduction of policies (2023 to present)

2023 is a key year for the comprehensive deepening of virtual asset regulation in Hong Kong. A series of important regulations and guidelines have been successively introduced, marking that Hong Kong has entered a new era of comprehensive regulation of virtual assets.

• The Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Ordinance 2022 comes into effect (2023 June 6):
  
  The Ordinance formally establishes a mandatory licensing system for virtual asset service providers (VASPs, mainly VATPs). All platforms that operate virtual asset exchange businesses in Hong Kong or actively promote their services to Hong Kong investors must apply for a license from the SFC. More importantly, the new system allows licensed VATPs to provide services to retail investors, provided that they comply with the strict investor protection measures established by the SFC.
• SFC Circular on Tokenization of Approved Investment Products (November 2023, 11):
  
  This circular regulates the use of distributed ledger technology (DLT) for tokenized issuance of investment products approved by the SFC (such as funds). The circular clarifies that the primary market subscription and redemption of tokenized products must comply with the same compliance obligations as the underlying traditional products, including information disclosure, risk management and customer suitability assessment. This opens the door to compliance for tokenized innovation of traditional financial products.
• SFC Fund Management Circular on RWA Exposure (December 2023):
  
  The SFC further issued a circular to bring SFC-approved funds holding virtual assets, including tokenized real-world assets (RWA), under regulation. The circular sets a minimum exemption threshold of 10% of the nominal net asset value (NAV), meaning that if the fund's RWA investment exceeds 10%, it must meet stricter regulatory requirements, such as submitting detailed risk management policies, liquidity management tools, emergency redemption plans, and audit reports on network security and smart contracts.
• SFC releases “ASPI-Re” regulatory roadmap:The SFC has proposed the "ASPI-Re" (Access, Safeguards, Products, Infrastructure, Relationships) regulatory roadmap, which aims to consolidate Hong Kong's position as a leading financial center. The roadmap emphasizes "same business, same risk, same rules" and the "penetration principle", which means that regulatory boundaries are defined based on the underlying economic substance of assets rather than their digital form. This move aims to eliminate regulatory gray areas, support virtual asset innovation, and accelerate the tokenization of securities, funds and real-world assets. The SFC also emphasized that regulators need to "update old rules to adapt to hybrid models (such as tokenized securities)" and ensure that "innovations such as smart contracts and DLT platforms follow core regulatory objectives."

 

 

• Hong Kong Stablecoin Regulatory Legislation (The Stablecoin Bill was passed in the third reading on May 2025, 5 and officially came into effect):
  
  According to the latest information, the Hong Kong Legislative Council has officially passed the Stablecoin Bill. The bill will be implemented by the Hong Kong Monetary Authority (HKMA) and will impose mandatory licensing management on entities that issue stablecoins pegged to one or more fiat currencies in Hong Kong. Core requirements include 1:1 full high-quality liquid asset reserves, regular third-party audits, a robust redemption mechanism, strict AML/CFT measures, customer due diligence, and attention to smart contract security and business continuity.
• Consultation on the draft regulation of over-the-counter (OTC) business is progressing:
  
  It is reported that the consultation on the draft regulation of virtual asset over-the-counter (OTC) business is underway, and it is expected that relevant regulations may be issued by the end of 2025 at the earliest. This indicates that OTC business will also be included in a clearer regulatory framework.

 

5. The formation of a dual-track regulatory structure: synergy between the SFC and the HKMA

With the implementation of various policies, Hong Kong has formed a dual-track virtual asset regulatory structure with SFC and HKMA as the core:

• SFC's regulatory responsibilities:
  
  It is mainly responsible for security tokens, virtual asset trading platforms (VASP licenses), virtual asset fund managers (VA Asset Management License No. 9), virtual asset investment advisors and tokenized SFC-approved investment products under the Securities and Futures Ordinance. SFC supervision focuses on investor protection, market integrity and financial stability.
• HKMA’s supervisory responsibilities:
  
  It is mainly responsible for virtual asset activities related to the banking system and the supervision of stablecoin issuers in accordance with the new Stablecoin Ordinance. HKMA focuses on maintaining the stability of the monetary and banking systems, as well as the safe and efficient operation of the payment system.

SFC and HKMA have strengthened cooperation by signing a memorandum of understanding and other forms to jointly deal with the cross-border risks brought by virtual assets and ensure the consistency and effectiveness of supervision. This dual-track regulatory structure not only plays the professional advantages of each party, but also forms a regulatory synergy, jointly promoting the innovation and steady development of Hong Kong's virtual asset market, and providing a solid institutional guarantee for Hong Kong to build a world-leading "traditional finance + blockchain" innovation center.

 

Summary of key points in Part I:

• Hong Kong's virtual asset regulation has evolved from point-like warnings to a systematic framework. The SFC leads the regulation of securities-related virtual assets and trading platforms, while the HKMA leads the regulation of stablecoins.
• 2023 is a milestone in the comprehensive deepening of supervision, and VATP mandatory licensing and retail participation are major breakthroughs.
• The clear regulatory framework for RWA tokenization and stablecoins will inject new impetus into Hong Kong's financial innovation.
• The “ASPI-Re” roadmap demonstrates Hong Kong’s long-term planning and “penetrating” regulatory concept in the field of virtual assets.

 

Part II: In-depth analysis of supervision in core areas

As the regulatory framework for virtual assets in Hong Kong continues to improve, several core areas have become the focus of market attention. This section will combine the latest policy documents, practical cases and regulatory requirements to conduct an in-depth analysis of the supervision of security token issuance (STO) and real-world asset (RWA) tokenization, stablecoins, virtual asset trading platforms (VATP), virtual asset fund management and over-the-counter (OTC) transactions.

 

1. Security Token Offering (STO) and Real World Asset (RWA) Tokenization Regulation

STO Regulatory Review and Core Requirements

The SFC’s “Statement on Security Token Offerings” issued in March 2019 is the cornerstone of Hong Kong’s STO regulation. The statement clearly states:

• Securities attribute identification:
  
  If a token has the characteristics of a traditional security (such as representing equity, debt or profit-sharing rights), it is considered a “security” under the Securities and Futures Ordinance.
• Licensing requirements:
  
  Intermediaries that promote or distribute STOs are required to hold a license for Type 1 (dealing in securities) regulated activities.
• Investor Restrictions:
  
  STOs are generally limited to sales to “professional investors” (as defined in the Securities and Futures (Professional Investors) Rules).

This framework ensures that STO operates within the orbit of existing securities regulations, emphasizing investor protection and market order.

 

The Evolution of RWA Tokenization Regulation

With the development of blockchain technology, the trend of tokenizing traditional financial assets (i.e. real-world assets (RWA)) has become increasingly prominent. SFC has taken a positive and cautious attitude towards this:

• SFC Circular on Tokenization of Approved Investment Products (November 2023):
  
  The circular opens the way for SFC-approved investment products, such as mutual funds, to be tokenized using DLT.
  • Primary Market:
    
    It clarifies the regulatory requirements for the subscription and redemption (primary market) of tokenized products, emphasizing that issuers and distributors must assume the same compliance obligations as underlying traditional products, including continuous information disclosure, risk management and customer suitability assessment.
  • Secondary Market:
    
    Regarding the trading of tokenized products in the secondary market, the SFC said it will closely monitor market developments and will further clarify its regulatory stance in subsequent guidelines, suggesting that comprehensive regulation may be included in the future.
• SFC Fund Management Circular on RWA Exposure (December 2023):
  
  This circular further details the regulation of SFC approved funds investing in RWAs.
  • Regulatory threshold:
    
    If a fund invests more than 10% of its net asset value in virtual assets, including RWAs, it will be subject to stricter additional regulations.
  • Risk management requirements:
    
    Fund managers need to formulate and submit detailed risk management policies, liquidity management tools, emergency redemption plans, and provide audit reports on network security and smart contracts to fully cover new risks that tokenized assets may bring at the technical and operational levels.
• Inspiration from the “ASPI-Re” regulatory roadmap (early 2025):
  
  The roadmap reiterates the SFC’s support for RWA tokenization.
  • Penetration principle:
    
    The SFC will classify products based on the "penetration principle" and define regulatory boundaries based on underlying assets and actual businesses (rather than their digital forms).
  • Rule updates and innovation support:
    
    Emphasizing the need for regulators to "update old rules to accommodate hybrid models (such as tokenized securities)" and ensure that "innovations such as smart contracts and DLT platforms adhere to core regulatory objectives", this clears the way for more traditional financial assets and RWAs to be included in regulation in the form of tokens and affirms Hong Kong's leading position in this area.

 

Hong Kong RWA Practice Case Analysis

Hong Kong not only promotes the development of RWA at the policy level, but also verifies its feasibility through actual cases:

• Government Tokenized Green Bonds (Project Genesis):
  
  On February 2023, 2, the Hong Kong SAR government successfully issued the world's first batch of tokenized green bonds issued by the government, with a total amount of HK$16 million. The bond was issued through the DLT platform provided by Goldman Sachs. The issuance, clearing and custody of the entire life cycle were completed on the chain, which significantly shortened the settlement cycle (from T+8 to T+5) and improved transparency. This case is not only a major innovation in Hong Kong's digital finance field, but also paves the way for the SFC to subsequently recognize more tokenized products.
• Ensemble Project Sandbox:
  
  In 2024, the Hong Kong Monetary Authority (HKMA) launched a project sandbox called "Ensemble" to explore the application of tokenization in interbank settlement, tokenized deposits and tokenized assets (such as money market funds). In August 2024, the SFC and HKMA jointly announced the Ensemble project, marking the first collaboration between regulators and the industry to use tokenized currencies for asset settlement between banks. In October of the same year, a local bank in the sandbox successfully completed a simulation test of "delivery versus payment" (DvP) settlement using tokenized deposits and tokenized money market funds, achieving 8/10 instant on-chain subscription, redemption and cross-bank settlement, and efficiently verifying the operating model of tokenized funds in actual scenarios.

 

The development prospects and regulatory challenges of RWA in Hong Kong

With its sound financial system, rule of law and positive policy orientation, Hong Kong has great development potential in the field of RWA. RWA is expected to improve asset liquidity, reduce transaction costs and expand the investor base. However, its development also faces challenges such as valuation, custody, legal ownership definition, smart contract security and cross-border regulatory coordination. SFC and HKMA are actively responding to these challenges through continuous policy updates and sandbox experiments, striving to provide a clear regulatory path and solid institutional guarantees for the healthy development of RWA in Hong Kong. Through the on-chain issuance of green bonds, the successful trial application of tokenized currency settlement in the Ensemble sandbox, the successful legislation of stablecoin issuance, and the SFC's systematic supervision of tokenized securities products, Hong Kong has moved from pilot exploration to business implementation, accelerating its development into a world-leading "traditional finance + blockchain" innovation center.

 

2. Stablecoin Regulatory Framework

Stablecoins play an important role as a medium of payment and value storage in the virtual asset ecosystem due to their characteristics of being anchored to legal tender. Given their potential systemic impact, global regulators are paying close attention to them. Hong Kong is no exception and has taken substantial regulatory steps.

back ground

As events such as the Terra/Luna collapse exposed the risks of some stablecoins and the advancement of central bank digital currency (CBDC) research in various countries, the regulation of stablecoins has become increasingly urgent. As an international financial center, Hong Kong must establish a robust stablecoin regulatory framework to maintain financial stability and investor confidence while seizing related innovation opportunities.

Interpretation of the core content of the Stablecoin Regulations

According to the latest information, the Hong Kong Legislative Council has2025 January 5The Stablecoin Bill was passed in the third reading and officially came into effect. The main content of the bill is expected to revolve around the discussion paper and consultation summary previously released by HKMA:

• Regulatory agencies:
  
  Hong Kong Monetary Authority (HKMA).
• Suitable:
  
  It mainly targets issuers of stablecoins issued in Hong Kong that claim to be anchored to one or more legal currencies (such as Hong Kong dollars and US dollars).
• Core Requirements:
  • Licensing System:
    
    Stablecoin issuers must apply for a license from the HKMA before they can operate in Hong Kong.
  • 1:1 Full Reserve:
    
    The issuer must hold sufficient, high-quality, and highly liquid reserve assets (such as bank deposits and short-term government bonds) for the stablecoins it issues, and the value of the reserve assets must not be less than the total value of the stablecoins in circulation. The reserve assets must be isolated from the issuer's own assets and held by a qualified custodian.
  • Third-party audit:
    
    The composition, size and management of the reserve fund are subject to regular independent third-party audits, and the audit results are disclosed to the public.
  • Redemption mechanism:
    
    It must be ensured that users can redeem stablecoins for reference fiat currency at par within a reasonable time (for example, the user provides information indicating on-chain/off-chain redemption within 24 hours).
  • AML/CFT/CPF:
    
    Strictly comply with Anti-Money Laundering (AML), Counter-Terrorism Financing (CFT) and Counter-Proliferation Financing (CPF) regulations, and implement effective Customer Due Diligence (CDD) and transaction monitoring.
  • Risk Management:
    
    Establish a comprehensive risk management framework, including operational risk, cybersecurity risk, liquidity risk, reserve management risk, etc.
  • Disclosure of Information:
    
    Fully and clearly disclose to users and the public information such as the operating mechanism, reserve asset status, and related risks of stablecoins.
  • Smart Contract Security and Business Continuity:
    
    Smart contracts need to be traceable, audited, and have failover and business continuity measures.

Impact on Market Participants

The implementation of the Stablecoin Regulations will have a profound impact on the market:

• Improve market transparency and confidence:
  
  Mandatory reserve requirements and audits will greatly enhance the credibility of stablecoins.
• Strengthening investor protection:
  
  Robust redemption mechanisms and risk management requirements help protect user assets.
• Regulating market order:
  
  The licensing system will eliminate non-compliant issuers and promote the healthy development of the industry.
• Increased compliance costs:
  
  Issuers need to devote more resources to meet stringent regulatory requirements.
• Promoting innovative applications:
  
  Under a compliance framework, stablecoins are expected to play a greater role in payment, cross-border remittances, DeFi and other fields.

 

3. Virtual Asset Trading Platform (VATP) licensing system and operating requirements

Starting from June 2023, 6, Hong Kong will officially implement the VATP mandatory licensing system, which is a key step towards comprehensive virtual asset supervision in Hong Kong.

• Regulatory agencies:
  
  Securities and Futures Commission (SFC) of Hong Kong.
• Licensing System:
  
  Platforms that operate virtual asset exchange businesses or actively promote their services to the Hong Kong public must obtain a VASP (Virtual Asset Service Provider) license issued by the SFC. This usually means that the applicant needs to apply for both Type 1 (Securities Trading) and Type 7 (Providing Automated Trading Services) regulated activity licenses, or apply for a specific license under the new VASP regime.
• Core regulatory requirements:
  • Investor Perception Test:
    
    Before opening an account for a retail client, it is necessary to assess their understanding of virtual assets.
  • Risk Disclosure:
    
    Fully disclose the significant risks of virtual asset investments to retail customers.
  • Suitability Assessment:
    
    When recommending or soliciting virtual asset transactions, ensure that the advice is suitable for the client.
  • Investment Limits:
    
    The SFC may impose exposure caps on retail investors investing in certain high-risk virtual assets.
  • Insurance:
    
    It is necessary to purchase SFC-approved insurance for customer assets to cover the risks of cold and hot wallets.
  • Corporate Governance and Financial Soundness:
    
    Applicants are required to have a sound corporate governance structure, adequate financial resources (such as minimum paid-up capital, liquidity requirements) and effective risk management policies.
  • Safekeeping of customer assets:
    
    Customers' virtual assets and legal tender must be strictly protected. Platforms are usually required to store their customers' virtual assets in a fully managed subsidiary of the Hong Kong Trust Company (HKTC) or an independent third-party custodian approved by the SFC (98% cold storage, 2% hot storage guidelines). Customer funds must be stored in a designated trust account or separate account.
  • KYC/AML/CFT:
    
    Strict Know Your Customer (KYC), Customer Due Diligence (CDD) and Anti-Money Laundering/Counter-Terrorism Financing (AML/CFT) measures must be implemented, including conducting customer risk assessments, continuously monitoring transactions, and reporting suspicious transactions.
  • Risk Management:
    
    Establish a comprehensive risk management framework covering market risk, liquidity risk, operational risk, cybersecurity risk, counterparty risk, etc. Regular stress testing and security audits are required.
  • Asset listing standards and due diligence:
    
    The platform needs to set up a token inclusion and review committee to conduct strict due diligence on virtual assets to be listed for trading, evaluate their legality, security, liquidity, team background, technical foundation, etc., and ensure that at least one non-security token has high liquidity (such as being included by at least two accepted index providers).
  • Conflict of Interest Management:
    
    It is necessary to identify and properly manage possible conflicts of interest between the platform itself, its employees and related parties, such as prohibiting proprietary trading of certain types of virtual assets.
  • Protection measures for retail investors:
  • Transitional arrangements:
    
    For VATPs that have been operating in Hong Kong before the Ordinance comes into effect, the SFC provides a transitional arrangement, allowing them to continue operating and apply for a license if certain conditions are met. Platforms that do not apply or are not approved must orderly end their business in Hong Kong.
• Market impact:
  
  The mandatory licensing system has significantly improved the compliance level and transparency of Hong Kong's VATP market, provided a safer trading environment for investors (including retail investors), and also attracted more international platforms seeking compliant development.

 

4. Virtual asset fund management and distribution supervision

The SFC has also established clear regulatory requirements for institutions engaged in the management and distribution of virtual asset funds, which are mainly reflected in the additional regulations for institutions holding Category 9 (providing asset management) regulated activity licenses.

• Applicable license:
  
  To conduct virtual asset management business, it is necessary to hold or apply for an SFC Category 9 license and meet specific requirements for virtual assets.
• Requirements for fund managers
  
  (When 10% or more of the total net asset value of the fund portfolio is invested in virtual assets):
  • Investment scope and strategy:
    
    The fund’s virtual asset investment strategy, the types of virtual assets that can be invested in (e.g. only highly liquid virtual assets with a good market foundation), due diligence standards and risk management measures must be clearly defined.
  • Custody Arrangements:
    
    In principle, client virtual assets must be independently managed by a functionally independent SFC-approved virtual asset custodian or licensed TCSP (trust or corporate service provider). Fund managers are required to conduct strict due diligence and continuous monitoring of the custodian.
  • Valuation method:
    
    Clear, consistent, verifiable valuation policies and procedures based on independent sources are needed for virtual assets, especially those that lack active market quotes or have low liquidity.
  • Risk Management:
    
    A comprehensive risk management framework must be established to address the risks unique to virtual assets (such as drastic price fluctuations, insufficient liquidity, counterparty default, network security, private key management, fork events, regulatory uncertainty, etc.).
  • Specific requirements for RWA exposures:
    
    If the fund invests in RWA tokens, it will also be required to comply with the stricter provisions on risk management, liquidity tools, contingency plans and audits in the aforementioned December 2023 circular.
• Requirements for distributors
  
  (Distribution of funds or tokenized investment products investing in virtual assets):
  • Client Suitability Assessment:
    
    Before recommending virtual asset-related investment products to customers (especially retail customers), a rigorous customer suitability assessment must be conducted to ensure that the customers have sufficient financial resources to bear the risks and understand the product features.
  • Information Disclosure and Risk Warning:
    
    Clear, concise and comprehensive product information and risk disclosure statements must be provided to customers, highlighting the high-risk characteristics of virtual assets.
  • Professional Investor Restrictions:
    
    For certain high-risk or complex virtual asset funds, distribution may be limited to professional investors.

 

5. Over-the-counter (OTC) regulatory trends and prospects

Virtual asset over-the-counter (OTC) trading has a certain share in the Hong Kong market due to its flexibility and ability to handle large transactions. However, OTC business has also attracted regulatory attention due to its low transparency and counterparty risk.

• Current situation and potential risks of Hong Kong OTC market:
  
  At present, some OTC platforms may be outside the VASP licensing system, which may lead to risks such as insufficient AML/CFT compliance and lack of investor protection. Large amounts of cash transactions may also increase the risk of money laundering.
• SFC's focus on OTC business:
  
  The SFC has repeatedly warned of the risks of trading with unregulated OTC platforms, and is concerned about whether they involve security token transactions or constitute collective investment schemes, and whether their AML/CFT measures are in place.
• Progress of draft consultation and possible regulatory direction:
  
  According to the latest news, the SFC is actively promoting the consultation on the draft regulation for OTC business. It is expected that the relevant regulations may be issued as soon as possible.End of 2025The market generally expects that future regulatory directions may include:
  • Bring OTC platforms that meet specific definitions into the scope of VASP license supervision, or establish a special OTC license category.
  • Mandatory requirements for OTC platforms to implement comprehensive AML/CFT measures, including customer due diligence, transaction monitoring and suspicious transaction reporting.
  • Specific requirements are put forward for the capital, operation, information disclosure, customer asset protection and other aspects of the OTC platform.
  • Strengthen the management of large cash transactions conducted through OTC platforms.

The clarification of the OTC business regulatory framework will further complete the puzzle of virtual asset regulation in Hong Kong and help improve the compliance level of the entire market and investor confidence.

 

Summary of key points in Part II:

• STO and RWA:
  
  Hong Kong has provided a clear path for STOs and tokenization of approved investment products, and actively promoted the development of RWA through the "ASPI-Re" roadmap and practical cases (such as green bonds and Ensemble projects).
• Stablecoins:
  
  The entry into force of the Stablecoin Ordinance marks the arrival of an era of strong regulation by the HKMA on fiat stablecoin issuers, with the core focus on reserves, redemption and AML.
• VATP:
  
  The mandatory licensing system and its opening to retail investors are major developments, and place extremely high demands on platforms in terms of customer asset custody, AML/CFT, risk control, etc.
• VA Fund Administration:
  
  Type 9 licensees managing VA funds must meet additional prudential regulatory requirements such as custody, valuation, and risk control.
• OTC:
  
  Moving towards clearer regulation, with a focus expected on AML/CFT and investor protection.

 

Part III: Practical Guide to Core License Application

For companies that intend to conduct virtual asset business in Hong Kong, understanding and successfully applying for relevant licenses is the cornerstone of compliant operations. This section will provide detailed application and practical guidance for the Virtual Asset Service Provider License (VASP License), the Type 9 Regulated Activity (Asset Management-Virtual Assets) License (VA Asset Management License No. 9), the Hong Kong Trust or Company Service Provider (TCSP) License, and the Stablecoin Issuer License.

 

3.1 Practical Guidelines for Applying for Virtual Asset Service Provider License (VASP License, Including Trading Platform Business)

Comparison of options/solutions: VASP license application strategy

Recommended Suggestions: Practical Guidelines for Applying for a VASP License

Core strategy recommendations:

• Preferred strategy: Strategy B: External expert consultation assistance
  • Recommended reason:
    
    Given the extreme complexity of VASP license applications, the SFC's extremely high requirements for the quality of application materials and compliance frameworks, and the rapid iteration nature of the virtual asset industry, external experts (especially consulting firms with successful cases) can provide key experience, resource networks and the latest regulatory insights, greatly improving the application success rate and shortening the cycle.
  • Scene adaptation:
    
    It is applicable to almost all enterprises that intend to operate VATP in compliance with Hong Kong, especially emerging enterprises or cross-border traditional financial institutions.
• Alternative strategies: Strategy A: Autonomous planning and execution
  • Recommended reason:
    
    If a company already has a very mature internal virtual asset compliance team (including an RO with rich SFC license experience), deep technical accumulation and sufficient financial resources, and is willing to invest a lot of time in exploration, it can consider this strategy.
  • Scene adaptation:
    
    It applies to situations where large global virtual asset groups establish branches in Hong Kong and the parent company has similar regulatory experience.

VASP License Overview and Key Eligibility Requirements

• Basic description of license plate:
  
  The VASP license is an official license issued by the Hong Kong Securities and Futures Commission (SFC) in accordance with the virtual asset service provider licensing system under the Anti-Money Laundering Ordinance. It is intended to regulate activities such as the operation of virtual asset trading platforms.
• Main functions and permissions:
  
  Licensed institutions are allowed to operate virtual asset exchanges in Hong Kong and provide virtual asset trading services to retail and professional investors (including currency-to-currency trading, fiat currency trading, etc., depending on the scope of SFC approval).
• Regulatory agencies:
  
  Hong Kong Securities and Futures Commission (SFC)
• Core application qualifications (non-exhaustive list, please refer to the latest official guidelines):
  • Trading system: The robustness, security, efficiency and scalability of the trading platform must be demonstrated, and effective market monitoring capabilities must be available.
  • Cybersecurity: A strong cybersecurity framework is required and third-party security assessments (such as penetration testing, code audits, and smart contract audits) must be passed.
  • IT Risk Management: Comply with relevant SFC guidelines, such as the “Guidelines on IT Risk Management for Licensed Corporations”.
  • Comprehensive internal control procedures: including customer acceptance, AML/CFT, risk management (market, credit, liquidity, operations, cybersecurity, third-party service providers), conflicts of interest, cybersecurity, data protection, complaints handling, business continuity planning, etc.
  • AML/CFT Policy: Policies that comply with the Hong Kong Anti-Money Laundering Ordinance and SFC guidelines need to be formulated and effectively implemented, including risk-based approaches, customer due diligence (CDD), continuous monitoring, suspicious transaction reporting, etc., and blockchain analysis tools may need to be used.
  • Custody of client assets: A robust custody plan for client virtual assets and funds is required, which usually requires cooperation with a qualified custodian (such as cooperation with an SFC-licensed trust company or its subsidiary HKTC, or a virtual asset custodian approved by the SFC), or proof that the security of its own custody plan (such as independent audits, strict internal controls) meets extremely high standards.
  • Asset listing standards: There must be clear and rigorous due diligence procedures and standards for the listing and delisting of virtual assets, and an independent token selection and review committee must be established.
  • External Audit: External auditors need to be hired to conduct regular audits of financial statements, compliance controls, network security, asset custody, etc.
  • Responsible Officers (RO): At least two ROs, at least one of whom is based in Hong Kong, with relevant industry experience (such as virtual assets, financial technology, compliance, risk control) and competence recognized by the SFC, and have passed relevant examinations.
  • Supervisory personnel (MIC): It is necessary to appoint core functional supervisors (such as compliance, risk control, technology, operations, etc.) and ensure their suitability.
  • Proper and Fit Standards: All key personnel must meet the SFC’s “proper and fit” standards (character, experience, ability, financial soundness).
  • Legal entity requirements: Must be a company incorporated in Hong Kong or a non-Hong Kong company registered in Hong Kong.
  • Minimum paid-in/operating capital requirements: The SFC will assess and demonstrate that sufficient financial resources are available to support operations and address risks (usually in the millions to tens of millions of Hong Kong dollars).
  • Local office requirements: A physical office must be set up in Hong Kong and staffed with core functional personnel.
  • Insurance requirements: You need to purchase insurance approved by the SFC to cover the risk of customer asset loss (such as custody risk, network security risk, insurance coverage of approximately 98% of assets in cold storage + 2% in hot storage).
  • Company level:
  • Personnel level (RO/person in charge/MIC/key personnel):
  • Compliance and risk control system:
  • Technology and Operations:

Detailed application process and steps (from the perspective of recommended strategy B)

 

VASP license application process and estimated time (Strategy B perspective)

Phase 3: Planning and preparation (6-XNUMX months) ↓

• Select professional consultants and build internal project teams

• In-depth understanding of regulatory requirements and formulation of application strategies

• Design/optimize business model and compliance operation framework

• Identification and assessment of key personnel (RO)

Phase 6: Application document preparation and system construction (12-XNUMX months) ↓

• Write a complete application package

• Implement infrastructure and systems

• Internal audits and mock reviews

Phase 6: Application submission and regulatory review interaction (12-XNUMX+ months) ↓

• Submit formal application and pay fee

• Response to SFC inquiries (multiple rounds)

• SFC on-site review and interview

Phase 1: Approval in principle and formal licensing (3-XNUMX months)

• Obtain Approval in Principle (AIP)

• Satisfy pre-licensing requirements

• Obtaining formal license and preparing for business opening

• Ongoing compliance operations

Total estimated time: 18-24+ months (may be longer depending on the specific situation)

 

• Phase 3: Planning and preparation (estimated time: 6-XNUMX months)
• Step 1.1: Select professional consultants and form an internal project team.Key Outputs/Deliverables:Consultant Services Agreement; Internal Project Charter; Preliminary Gap Analysis Report.
• Step 1.2: Gain a deep understanding of regulatory requirements and develop an application strategy.Key Outputs/Deliverables:List and interpretation of regulatory requirements; detailed application strategy plan; gap analysis report and rectification plan.
• Step 1.3: Design/optimize business model and compliance operation framework.Key Outputs/Deliverables:Detailed draft business plan; Compliance manual framework; Risk management policy framework; Technical architecture plan.
• Step 1.4: Identification and assessment of key personnel (RO).Key Outputs/Deliverables:RO candidate list and preliminary assessment report.
• Phase 6: Application document preparation and system construction (estimated time: 12-XNUMX months)

• Step 2.1: Write a complete application package.Key Outputs/Deliverables:A complete application package (including business plan, compliance manual, AML/CFT policy, risk management framework, organizational chart, RO and MIC resumes and questionnaires, financial forecast, technical architecture description, cybersecurity assessment report, letter of intent from external auditors and custodians, etc.).
• Step 2.2: Implement infrastructure and systems.Key Outputs/Deliverables:System test report; third-party security assessment report; escrow agreement.
• Step 2.3: Internal Audit and Mock Review.Key Outputs/Deliverables:Internal audit opinions; simulation review reports; document modification records.
• Phase 6: Application submission and regulatory review interaction (estimated time: 12-XNUMX+ months, with high uncertainty in SFC review time)

• Step 3.1: Submit your application and pay the fee.Key Outputs/Deliverables:SFC acceptance receipt; payment receipt.
• Step 3.2: Respond to SFC inquiries (multiple rounds).Key Outputs/Deliverables:Response letter and supplementary documents to SFC’s inquiry.
• Step 3.3: SFC on-site review and interview.Key Outputs/Deliverables:On-site review preparation materials; interview presentation materials.
• Phase 1: Approval in principle and formal license (estimated time: 3-XNUMX months)

• Step 4.1: Obtain Approval in Principle (AIP).Key Outputs/Deliverables:Approval in Principle (AIP).
• Step 4.2: Satisfy pre-licensing conditions.Key Outputs/Deliverables:A package of supporting documents that meet the requirements.
• Step 4.3: Obtain formal license and prepare for opening.Key Outputs/Deliverables:VASP official license; SFC business approval.
• Step 4.4: Continue to operate in compliance.Key Outputs/Deliverables:Various compliance reports; internal audit records.

 

Key success factors and common pitfalls

• Key success factors:
• Deeply understand and keep up with the SFC's regulatory expectations and latest guidance.
• Submit high-quality, impeccable application materials, especially the business plan, compliance manual and risk management framework.
• We have an experienced RO and MIC team with clean backgrounds.
• Robust and secure technical architecture and customer asset protection solutions.
• Adequate financial resources and clear sources of capital.
• Maintain professional, transparent and proactive communication with SFC.
• Choose an experienced, professional consultant.
• Common pitfalls and avoidance suggestions:

• Pitfall 1:
  
  The business model is inconsistent with the regulatory spirit of Hong Kong or there is a significant compliance risk.avoid:Conduct sufficient demonstration before applying to ensure that the business model meets the SFC's expectations for investor protection and market integrity.
• Pitfall 2:
  
  AML/CFT and customer asset custody programs are weak or only exist on paper.avoid:Invest sufficient resources to build a strong AML/CFT system and process, choose a compliant custody solution, and be able to demonstrate it in practice.
• Pitfall 3:
  
  ROs are not sufficiently qualified or have a shallow understanding of business and compliance.avoid:ROs are strictly screened to ensure they have relevant experience recognized by SFC and are adequately trained.
• Pitfall 4:
  
  Technical systems have security vulnerabilities or fail to meet regulatory requirements.avoid:Conduct comprehensive technical assessments and third-party security audits to ensure the system is safe and reliable.
• Pitfall 5:
  
  Responses to SFC inquiries were not timely, adequate or of low quality.avoid:Establish an efficient response mechanism to ensure that all responses are carefully reviewed and professional advice is sought when necessary.
• Pitfall 6:
  
  Underestimating the complexity and resource commitment of the application.avoid:Perform adequate due diligence and create a realistic budget and timeline with ample buffer.

 

Estimated time and cost (for reference only, varies by project)

• Overall time frame:
  
  From start-up preparation to final approval, it is generally expected to take18 to 24 monthsor longer, with the SFC review phase having the greatest uncertainty.
• Main cost components:
  • Regulatory application fee: subject to the latest announcement by SFC.
  • Professional service fees (consultants, lawyers, auditors): ranging from several million to tens of millions of Hong Kong dollars, depending on the scope and complexity of the services provided.
  • Capital requirements: Maintain paid-in/operating capital as required by the SFC, usually tens of millions of Hong Kong dollars.
  • Technical system construction/purchase cost: millions to tens of millions of Hong Kong dollars.
  • Staff recruitment and remuneration (especially ROs and core compliance technicians): expensive.
  • Insurance cost: HK$1 million per year.
  • Office space leasing, ongoing operations and compliance costs, etc.

 

3.2 Practical Guidelines for Upgrading/Application for Category 9 Regulated Activities (Asset Management - Virtual Assets) License (VA Asset Management License No. 9)

Comparison of options/solutions: VA Asset Management No. 9 license application/upgrade strategy

Recommended suggestions: VA Asset Management No. 9 License Application/Upgrade Practical Guide

 

Core strategy recommendations:

• Preferred strategy: Strategy B: External expert consultation assistance
  • Recommended reason:
    
    The SFC has set extremely high and specific regulatory standards for virtual asset management (such as custody, valuation, risk management, etc.), which are significantly different from traditional asset management. External VA professional consultants can ensure that the application/upgrade plan accurately meets these new requirements and avoid delays or failures caused by misunderstandings or insufficient preparation.
  • Scene adaptation:
    
    For traditional Type 9 licensed institutions that have no experience in virtual asset management to upgrade, or for newly established asset management companies focusing on virtual assets to apply.
• Alternative strategies: Strategy A: Autonomous planning and execution
  
   (Applicable to those who already have a No. 9 license and are seeking to expand slightly to mainstream virtual assets with better liquidity, and have VA professionals in-house)
  • Recommended reason:
    
    If a company already has a strong internal compliance team and a deep understanding of the SFC's regulatory style, and the types and strategies of virtual assets it plans to invest in are relatively simple, it can try to plan independently, but it is still recommended to seek external review for key links.
  • Scene adaptation:
    
    Large asset management companies have dedicated fintech/virtual asset research teams and have a preliminary VA risk management framework.

 

VA Asset Management Title 9 License Overview and Key Qualification Requirements

• Basic description of license plate:
  
  Licensed institutions are allowed to provide clients with services of managing investment portfolios that are invested in whole or in part in virtual assets. If 10% or more of the total asset value (NAV) of the portfolio is invested in virtual assets, additional requirements for virtual asset managers of the SFC must be met.
• Main functions and permissions:
  
  Establish and manage virtual asset funds, and provide virtual asset investment management services to professional investors (which may include retail investors under certain conditions, please pay attention to the latest guidance of the SFC).
• Regulatory agencies:
  
  Hong Kong Securities and Futures Commission (SFC)
• Core Application/Upgrade Qualifications (additional requirements for VA in addition to general Title 9 requirements):
  • Information Disclosure: Fully disclose to customers the risks, valuation methods, custody arrangements, etc. of virtual asset investments.
  • Audit: The audit must be conducted by an auditor familiar with the virtual asset business.
  • Investment scope and strategy: clearly define the types of virtual assets to be invested in, investment restrictions, and due diligence standards.
  • Valuation policy: Establish clear, robust, and verifiable valuation policies and procedures for virtual assets, especially those that lack active market quotes.
  • Custody arrangement: Client virtual assets must be entrusted to an independent third-party custodian that meets SFC standards (such as a licensed HKTC Trust Company or a VA custodian approved by the SFC) or a functionally independent subsidiary (with strict conditions). Comprehensive custody due diligence and continuous monitoring are required.
  • Risk management framework: Develop comprehensive management policies and procedures for risks unique to virtual assets (such as price volatility risk, liquidity risk, counterparty risk, fork risk, network security risk, private key management risk, regulatory uncertainty risk, etc.). If RWA is involved, it must include specific risk assessments for smart contracts.
  • AML/CFT: In view of the anonymity and cross-border nature of virtual asset transactions, strengthen AML/CFT measures, including the use of blockchain analysis tools.
  • Conflict of interest management: Manage new conflicts of interest that may arise from virtual asset business (such as participation in mining, staking, etc.).
  • Due diligence: Conduct strict due diligence on the virtual assets themselves, counterparties (such as exchanges, OTC platforms), custodians, etc.
  • Responsible Officer (RO): In addition to traditional asset management experience, at least one RO must have virtual asset-related experience (such as investment, operation, and compliance) recognized by the SFC.
  • Investment team: Professionals with virtual asset investment analysis and trading capabilities are required.
  • Compliance and risk control personnel: need to be familiar with the risks and compliance requirements unique to virtual assets.
  • Capital requirements: Must meet general Type 9 capital requirements and demonstrate sufficient financial resources to cover VA business risks.
  • Experience requirements: It is necessary to prove that the company or key personnel have sufficient experience and expertise in managing virtual assets.
  • Company level:
  • Personnel level (RO/MIC/key personnel):
  • Compliance and risk control system (VA specific):
  • Other specific requirements:

Detailed application/upgrade process and steps (from the perspective of [Recommended Strategy B])

 

VA Asset Management No. 9 License Application/Upgrade Process and Estimated Time (Strategy B Perspective)

Phase 2: Planning and preparation (4-XNUMX months) ↓

• Select expert consultants and determine the scope of upgrade/application

• Assess gaps and understand VA-specific regulatory requirements

• Determine VA investment strategy and risk control framework

Phase 3: Material preparation and process building (6-XNUMX months) ↓

• Write VA specific application/upgrade materials

• Determine hosting solution and technical framework

• Internal audit and optimization

Phase 4: Application submission and regulatory interaction (9-XNUMX+ months) ↓

• Formal submission of application/upgrade application

• Response to SFC inquiries

• Necessary interviews and additional information

Phase 1: Approval and business start-up (2-XNUMX months)

• Get approval

• Achieve additional conditions (if any)

• VA business start-up preparation and ongoing compliance

Total estimated time for upgrade: 6-12+ months; Total estimated time for new application: 12-18+ months

 

The process is similar to that of a VASP license, but the focus is different and the main differences will be highlighted.

1. Phase 2: Planning and preparation (estimated time: 4-XNUMX months)
   • Steps 1.1 – 1.3: Similar to VASP, but the gap analysis and business plan will focus on the specific requirements of VA asset management business, such as investment strategy, target VA, risk appetite, custody plan, valuation method, etc.Key outputs:VA asset management business business plan, VA specific compliance manual and risk control policy (draft).
2. Phase 3: Application document preparation and system/process establishment (estimated time: 6-XNUMX months)
   • Step 2.1: Write a complete set of application/upgrade materials.Key outputs:Completed application/upgrade package.
   • Step 2.2: Implement hosting and technical solutions.Key outputs:Hosting agreement; relevant system description and security assessment (if applicable).
3. Phase 4: Application submission and regulatory review interaction (estimated time: 9-XNUMX+ months)
   • Steps 3.1 – 3.3: Similar to VASPs, the SFC’s inquiries will focus on the details of the VA business, such as risk identification and control, custodian selection and due diligence, valuation rationality, and RO’s VA experience.
4. Phase 1: Approval and License Grant/Business Expansion Approval (estimated time: 2-XNUMX months)
   • Steps 4.1 – 4.4: Similar to VASP, upon approval, the VA must strictly comply with the ongoing regulatory requirements for VA asset management.

Key success factors and common pitfalls

• Key success factors:
  • A clear VA investment strategy and a strict risk management framework.
  • Compliant and secure VA hosting solution.
  • A core team with practical VA investment and management experience.
  • Transparent and reasonable VA valuation method.
  • Thoroughly understand and strictly implement the SFC's guidance on VA asset management.
• Common pitfalls and avoidance suggestions:
  • Pitfall 1:
    
    The custody arrangement does not comply with SFC requirements or due diligence is insufficient.avoid:Strictly follow the SFC guidelines to select the custodian, conduct full due diligence and continuously monitor.
  • Pitfall 2:
    
    The valuation methods for virtual assets are subjective, arbitrary or lack transparency.avoid:Establish clear, objective and verifiable valuation policies and fully disclose them to investors.
  • Pitfall 3:
    
    Risk management does not adequately cover risks specific to virtual assets.avoid:Systematically identify and assess VA-related risks and develop targeted mitigation measures.
  • Pitfall 4:
    
    RO or key personnel lack sufficient VA-related experience.avoid:Ensure that the team has VA expertise and management experience recognized by SFC, or enhance through training.

Estimated time and cost (upgrading existing 9-plates will be relatively quick and inexpensive)

• Overall time frame:
  
  New application: 12-18 months+; Upgrade: 6-12 months+.
• Main cost components:
  • Professional service fees: hundreds of thousands to millions of Hong Kong dollars.
  • Custody fees: Depends on the size of the assets and the custodian.
  • System and data fees: such as blockchain analysis tools, market data, etc.
  • Personnel costs: Professionals with VA experience are paid more.

 

3.3 Practical Guidelines for Application for Stablecoin Issuer License (Based on the Stablecoin Regulations)

Comparison of options/solutions: Stablecoin issuer license application strategy

Recommended Suggestions: Practical Guidelines for Applying for a Stablecoin Issuer License

Core strategy recommendation: Strategy B: External expert consultation assistance

• Recommended reason:
  
  The Stablecoin Issuer License is a new and highly demanding license under the supervision of the Hong Kong Monetary Authority (HKMA). It involves multiple complex areas such as reserve management, redemption mechanism, AML/CFT, cybersecurity, smart contract audit, etc. The HKMA's review standards will refer to the bank level. External experts can provide key policy interpretation, solution design and effective communication with the HKMA.

Overview of Stablecoin Issuer License and Key Eligibility Requirements

• Basic description of license plate:
  
  Issued by the Hong Kong Monetary Authority (HKMA) in accordance with the Stablecoin Ordinance (the specific name is subject to the text of the bill), it aims to regulate entities that issue stablecoins pegged to one or more fiat currencies in Hong Kong.
• Main functions and permissions:
  
  Licensed institutions are allowed to issue, manage and redeem fiat stablecoins in Hong Kong.
• Regulatory agencies:
  
  Hong Kong Monetary Authority (HKMA)
• Core application qualifications (based on current information and expectations, subject to final guidance from HKMA):
  • Connection with payment system (if applicable): must comply with relevant regulations to ensure the efficiency and security of payment settlement.
  • User complaint handling mechanism: Establish an effective and transparent user complaint handling process.
  • Redemption mechanism: It must ensure that users can redeem stablecoins for reference fiat currency at par value in a timely manner (e.g., information provided by users indicates on-chain/off-chain redemption within 24 hours).
  • AML/CFT/CPF: Formulate and effectively implement strict AML/CFT and counter-proliferation financing policies in compliance with Hong Kong regulations and international standards (such as FATF recommendations).
  • Risk Management: A comprehensive risk management framework covering reserve management risks (such as credit risk, market risk, liquidity risk), operational risk, cybersecurity risk, legal risk, reputation risk, etc.
  • Information Disclosure: Fully disclose to users and the public the operating mechanism of the stablecoin, the composition and size of the reserve, audit reports, redemption policies, fees, risks, etc.
  • Audit requirements: Reserves and business operations are subject to regular independent third-party audits (e.g. monthly reserve audit reports).
  • Technology and Security: Ensure the security, reliability, and scalability of the issuance and redemption systems. Smart contracts (if used) must be independently audited and verified (e.g., traceability, failover).
  • Business continuity and failover: Develop a comprehensive business continuity plan and failover measures to ensure the orderly operation or liquidation of the stablecoin system in extreme situations.
  • Proper and Fit Persons: Directors and senior management must meet the HKMA’s “proper and fit person” criteria (integrity, experience, ability, financial soundness).
  • Governance structure: There must be a sound corporate governance structure with clear division of responsibilities and powers.
  • Legal entity requirements: Company registered in Hong Kong.
  • Capital requirements: Adequate financial resources are required and the minimum capital requirements may be higher (may refer to the requirements for a stored value facility (SVF) license or higher).
  • Reserve requirements: The stablecoins issued must be fully backed 1:1 by safe, highly liquid assets (such as short-term government bonds and deposits in qualified banks). The reserve assets must be held by qualified custodians and be independent of the issuer's assets.
  • Local office and substantive business: Substantive business operations and management must be in Hong Kong.
  • Company level:
  • Personnel level (senior management/key personnel):
  • Compliance and risk control system:
  • Other specific requirements:

Detailed application process and steps (from the perspective of [Recommended Strategy B])

Stablecoin issuer license application process and estimated time (Strategy B perspective)

Phase 6: Careful planning and preparation (9-XNUMX months) ↓

• Qualification assessment and stablecoin model design

• Reserve management and redemption mechanism planning

• Senior management team formation

Phase 9: Application materials preparation and system construction (15-XNUMX months) ↓

• Comprehensive document writing (business plan, reserve policy)

• System development and hosting arrangements

• Security audit and technical verification

Phase 3: Communication with HKMA and formal submission (time uncertain) ↓

• Informal consultation and program adjustments

• Formal submission of application documents

Phase 12: HKMA strict review and interaction (24-XNUMX+ months) ↓

• Responded to multiple rounds of detailed inquiries

• System verification and interviews

• Coordination with other regulatory agencies

Phase 2: Approval in principle and formal license acquisition (6-XNUMX months)

• Satisfy the in-principle approval conditions

• Capital injection and reserve in place

• Obtain official license

Total estimated time: 24-36+ months (may be longer for the first batch of applications)

The process will be very rigorous, similar to applying for a banking license.

 

1. Phase 6: Careful planning and preparation (estimated time: 9-XNUMX months)
   • Qualification assessment and solution design: With the assistance of consultants, assess whether you meet the potential high threshold of HKMA, design the stablecoin model, reserve management plan, redemption mechanism, technical architecture, and compliance framework.
   • Capital and reserve planning: Develop detailed plans for capital injection and reserve raising and management.
   • Team building: Identify senior management and key position talents (such as CEO, CFO, CRO, CCO, CTO) who meet the requirements of HKMA.
2. Phase 9: Application materials preparation and system construction (estimated time: 15-XNUMX months)
   • Comprehensive document writing: Prepare extremely detailed application documents, including business plan (including profit model, market analysis), reserve management policy (including asset composition, custody arrangement, daily transparency report), risk management framework, AML/CFT policy, technical white paper (including system architecture, security measures), smart contract audit report, legal opinion (for business model and compliance), corporate governance documents, key personnel resumes, etc.
   • System development and testing: Develop and rigorously test stablecoin issuance, redemption, and monitoring systems; implement reserve custody arrangements; conduct comprehensive security audits and stress tests.
3. Phase 3: Communication with HKMA and formal submission (estimated time: variable, there may be a pre-communication phase first)
   • Informal communication (if applicable): Preliminary communication with HKMA before formal submission to introduce the proposal and understand its initial concerns and expectations will help improve the pertinence of the application.
   • Formal submission: Submit a full set of application materials and application fee to HKMA.
4. Phase 12: HKMA strict review and interaction (estimated time: 24-XNUMX+ months)
   • Multiple rounds of inquiries and reviews: HKMA will conduct an extremely rigorous and detailed review, which may involve multiple rounds of written inquiries, requests for additional materials, on-site inspections, in-depth verification of systems and processes, and interviews with management.
   • Coordination with relevant authorities: HKMA may coordinate with other regulatory authorities (such as the SFC if stablecoins involve investment attributes or are used for regulated activities; the Companies Registry, etc.).
5. Phase 2: Approval in principle and formal license (estimated time: 6-XNUMX months)
   • Approval in Principle and Conditions: If HKMA is initially satisfied, it will issue an Approval in Principle (AIP) with a number of conditions that need to be met before a license is granted (which may include a large capital injection, the availability of reserve funds as planned, completion of final system acceptance and independent audit, etc.).
   • Formal licensing and continuous supervision: After all conditions are met, HKMA will issue a formal stablecoin issuer license. After obtaining the license, the issuer must accept continuous and strict supervision by HKMA, regularly report reserve status, transaction volume, compliance status, financial statements, and accept regular on-site and off-site inspections.

Key success factors and common pitfalls

• Key success factors:
  • Impeccable reserve management solution (transparent, secure, highly liquid, sufficient, and independently managed).
  • A powerful, reliable and instant redemption mechanism ensures user confidence.
  • Bank-level AML/CFT and risk management system with effective monitoring and reporting capabilities.
  • Extremely high standards of technical security and smart contract security, audited by authoritative third parties.
  • A core management team with extensive financial regulatory experience, a good reputation and a deep understanding of the stablecoin business.
  • Adequate capital strength and a clear, sustainable long-term business model.
  • Maintain a highly transparent, proactive and cooperative communication attitude with the HKMA and other relevant regulatory authorities.
• Common pitfalls and avoidance suggestions:
  • Pitfall 1:
    
    Underestimation of HKMA’s stringent requirements on reserve security and liquidity, insufficient reserve asset quality or improper structure.avoid:We strictly follow HKMA guidelines to build reserve portfolios, select top custodians, and ensure transparency.
  • Pitfall 2:
    
    The redemption mechanism is poorly designed or cannot guarantee users’ full redemption rights within the promised time.avoid:Conduct adequate stress testing to ensure that the redemption process can operate smoothly under various market conditions and is supported by sufficient liquidity.
  • Pitfall 3:
    
    There are security vulnerabilities in technical systems or smart contracts, or various attack vectors are not fully considered.avoid:Hire a top international cybersecurity company to conduct multiple, thorough penetration tests and code audits.
  • Pitfall 4:
    
    AML/CFT measures are formalized and insufficient to address the potential risks of stablecoins in cross-border payments and anonymity.avoid:Employ advanced blockchain analysis and transaction monitoring tools, and develop AML policies and procedures that match the size and risk profile of your business.
  • Pitfall 5:
    
    The capital strength is insufficient to support long-term operations, cope with potential shocks or meet the prudential requirements of the HKMA.avoid:Conduct adequate financial planning and stress testing to ensure that capital adequacy ratios meet regulatory requirements and can cover potential losses.

Estimated time and cost

• Overall time frame:
  
  Expected24 – 36 monthsOr longer, because the license is brand new and the standards are extremely high, and the HKMA review process is highly uncertain.
• Main cost components:
  • Regulatory application fee: To be announced by HKMA, expected to be high.
  • Professional service fees (top consulting team, lawyers, auditors): several million to over 10 million Hong Kong dollars.
  • Reserves: 1:1 with the issuance scale, the initial issuance requires at least tens to hundreds of millions of Hong Kong dollars in equivalent reserves.
  • Working capital: tens of millions of Hong Kong dollars, used to support daily operations and risk buffer.
  • Technical system development and maintenance: tens of millions of Hong Kong dollars, including security audits and continuous upgrades.
  • Compliance and risk control team building and operation: high labor costs.
  • Insurance (if applicable), ongoing audit fees, etc.

 

Part 4: OTC regulatory vacuum and future prospects

4.1 OTC regulatory vacuum period: discussion on transitional operation path

Virtual asset over-the-counter (OTC) trading plays an important role in the virtual asset ecosystem due to its flexibility and ability to handle large transactions. However, Hong Kong has not yet issued a dedicated license for VA OTC. This section will explore how OTC businesses can refer to the existing regulatory framework and prudently seek the possibility of compliant operations under the current regulatory environment.

 

Discussion on the Compliance Operation Path of OTC Business in Hong Kong

Note: The above table is only a reference for compliance during the transition period and cannot replace future exclusive regulatory requirements.

 

1. Current status of OTC regulation: draft consultation and future prospects

• Overview of current regulation:
  
  So far, Hong Kong has not established a license or permit system specifically for virtual asset OTC trading service providers. This means that the OTC business is in a transitional stage of "specific regulatory rules to be clarified" to a certain extent. However, this does not mean that the OTC business is not subject to any regulatory constraints. It still needs to comply with the general laws and regulations of Hong Kong, such as the "Trade Descriptions Ordinance", "Theft Ordinance" and the "Organized and Serious Crimes Ordinance" on the handling of crime proceeds.
• Regulatory direction and consultation:
  
  The Financial Services and the Treasury Bureau (FSTB) is highly concerned about the potential risks of VA OTC business, especially money laundering and terrorist financing (ML/TF) risks. FSTB has completed public consultation on the "Legislative Proposals on OTC Transactions of Stablecoins and Virtual Assets in Hong Kong" in early 2024. The consultation document proposes that VA OTC service providers be included in a regulatory framework similar to licensed VASPs. The core regulatory requirements are expected to include:
  • Customer Due Diligence (KYC/CDD) and Record Keeping.
  • Development and implementation of AML/CFT policies and procedures.
  • Proper person requirement.
  • Tracking the source and destination of virtual assets.
  • Additional protections in providing services to retail investors.
• Future Outlook and Timetable:
  
  According to the latest information, the relevant draft legislation is still being actively formulated, and the market generally expects that exclusive regulatory regulations or guidelines for virtual asset OTC business may be issued inBy the end of 2025This will fill an important gap in the current regulatory framework.
• Current recommendations:
  
  Before the implementation of the exclusive OTC regulatory rules, we strongly recommend that companies engaged in or planning to engage in VA OTC business:
  1. Keep an eye on the latest regulatory developments and consultation documents released by the FSTB and SFC.
  2. Carefully assess the compliance risks of your own business model, especially AML/CFT risks.
  3. Proactively seek advice from professional legal advisors to understand potential obligations and best practices under the existing legal framework.
  4. Actively refer to the regulatory standards of existing relevant licenses (as described below) to improve the compliance level of your own operations and prepare for future supervision.

2. Reference for OTC compliance operations under the existing regulatory framework

Before the introduction of the OTC exclusive license, companies can refer to the regulatory requirements of the following existing license types based on their specific business models to improve compliance and reduce risks. It should be emphasized that reference is not equivalent to holding relevant licenses, nor can it completely replace the possible future OTC exclusive license requirements, but rather a risk mitigation measure to actively improve compliance standards.

Refer to the regulatory requirements of the Money Service Operator (MSO) license

• Applicable scenario analysis:
  • When the OTC business involves exchange services between legal currencies (for example, a customer wants to exchange US dollars for Hong Kong dollars and then use Hong Kong dollars to purchase virtual assets).
  • When an OTC platform serves as a channel for customers to deposit and withdraw fiat currency, that is, when customers use fiat currency to purchase virtual currency through the platform, or convert virtual currency into fiat currency and withdraw it, the "money services" (currency exchange or remittance services) involved in these transaction processes may overlap with the regulatory scope of MSOs.
• Core regulatory requirements refer to:
  
  The MSO license is issued and supervised by the Commissioner of Hong Kong Customs and Excise. Its core regulatory requirements are mainly focused on AML/CFT. OTC businesses can focus on learning from and adopting the following mature practices under the MSO system:
  • Customer Due Diligence (CDD/KYC): Establish strict customer identification and verification procedures to understand customer background, source of funds and transaction purpose.
  • Record keeping: Customer identity information, transaction records, etc. should be properly preserved for at least five years.
  • Suspicious Transaction Reporting (STR): Establish a monitoring mechanism to identify and report suspicious transactions to the Joint Financial Intelligence Unit (JFIU).
  • AML/CFT policy development and training: Develop and implement comprehensive AML/CFT internal policies, procedures and controls, and conduct regular training for employees.
• Analysis and notes:
  • The MSO license mainly regulates the money services defined in the Anti-Money Laundering Ordinance, namely currency exchange and remittance services. It does not directly cover the risks of virtual asset transactions themselves (such as price volatility risks, technical risks, virtual asset custody risks, counterparty risks, etc.).
  • Therefore, referring to the regulatory requirements of the MSO license is mainly to strengthen the AML/CFT compliance of the capital flow link in the OTC business and reduce the risk of being used for money laundering or terrorist financing.
  • For risks unique to virtual assets, companies still need to manage and control them through other means, such as strengthening network security, carefully selecting counterparties, and clarifying virtual asset custody responsibilities. Simply referring to MSO requirements is not enough to fully cover all compliance requirements of OTC business.

Reference to Trust or Company Service Provider (TCSP) license and trust structure

• Applicable scenario analysis:
  • In the OTC business model, the platform provides customers with custody services for fiat currency and/or virtual currency (especially in the case of non-instant clearing and delivery, customer funds or virtual assets will stay with the platform or related parties for a period of time).
  • The OTC platform not only matches buyers and sellers, but also further assists clients in finding counterparties and holds and transfers the client’s fiat currency or virtual currency on their behalf during the transaction.
  • In this model, the security of customer assets, the compliance of custody, and the fiduciary responsibility of the platform as an intermediary become core considerations.
• References and discussion directions for core regulatory requirements:
  • Trust responsibilities and legal framework: Drawing on the fiduciary responsibilities of trustees for client assets, such as prudent management, loyalty obligations, avoiding conflicts of interest, and asset segregation, as stipulated in the Hong Kong Trustee Ordinance and other laws and regulations, a standardized trust structure can provide stronger legal protection for client assets.
  • Asset isolation: One of the core advantages of the trust structure is to achieve effective legal isolation of customer assets from the platform's (or trustee's) own assets. This means that even if the platform or trustee itself faces financial difficulties, the customer assets under the trust do not belong to their bankruptcy property in principle and can be protected first.
  • AML/CFT requirements for TCSP licenses: TCSP license holders themselves must comply with strict AML/CFT regulations. If the OTC business manages customer assets by establishing a trust (with a licensed TCSP or a qualified trust company as the trustee), the trustee must fulfill AML/CFT obligations such as CDD to the trustor and beneficiary (ie, the customer), which helps to improve the compliance level of the entire business chain.
  • Clarify the relationship between rights and responsibilities: Through legal documents such as trust deeds, the rights, obligations and responsibilities between the principal (client), the trustee (such as a trust company) and the OTC platform (such as an investment advisor or manager of the trust) can be clearly defined to increase transparency.
• Path to explore:
  • The OTC platform can consider cooperating with an independent trust company holding a TCSP license, and the trust company will serve as a trustee to set up an independent trust account for OTC customers to keep their fiat currencies and virtual assets. The OTC platform will focus on providing services such as transaction matching and market information.
  • Alternatively, if an affiliated company of the OTC platform meets the requirements and obtains a TCSP license, the affiliated TCSP can provide custody services on the premise of ensuring functional independence and meeting the SFC/HKMA’s specific requirements for virtual asset custody.

 

Important note: The above discussion on reference to MSO or TCSP licenses and trust structures is a compliance analysis based on the existing regulatory framework and industry practices. It is not a final legal conclusion, nor does it mean that the SFC or any other regulatory agency has approved or approved a specific OTC operating model. Before actual operation, enterprises must consult professional legal advisors and compliance experts in detail on their specific business models, capital flows, asset custody arrangements, etc., and pay close attention to the latest legislative progress and final regulations of Hong Kong regulators on virtual asset OTC business to ensure that their operations are in full compliance with all laws and regulations that will take effect at that time.

 

3. OTC business three-line compliance model

Hong Kong OTC business three-line compliance model

 

4. In-depth analysis: Why does Hong Kong Crypto OTC consider a trust license?

As Hong Kong is still preparing to regulate virtual asset OTC business, some market participants have begun to explore and consider using Hong Kong's trust structure (possibly in combination with the compliance requirements of the TCSP license) to regulate their operations. The reasons behind this are complex and multifaceted, and can be summarized into the following seven points:

1.Avoiding potential risks of existing regulatory gaps

Elaboration:In the absence of a licensing system specifically for OTC business, if the OTC business involves safekeeping of large or long-term funds and virtual assets on behalf of customers, the completely unregulated operating model will face extremely high compliance risks and reputation risks.

analysis:The trust structure provides a way to hold and handle assets that is regulated by Hong Kong's mature trust laws (such as the Trustee Ordinance). By setting up a trust and entrusting the client's assets to a trustee for management, the risk of being considered a "black box operation" can be reduced to a certain extent, demonstrating the importance of protecting the security of client assets.

 

2.Enhance market trust endorsement

Elaboration:Trust is the cornerstone of financial services and is particularly critical to the virtual asset industry.

analysis:The TCSP license is a statutory license issued by the Companies Registry in accordance with the Anti-Money Laundering Ordinance. If the OTC business is provided by a licensed TCSP entity, it can send a positive compliance signal. The fiduciary duty inherent in the trust relationship itself can also enhance the trust of customers and partners.

 

3.Asset isolation and bankruptcy protection

Elaboration:This is one of the core advantages of adopting a trust structure, especially in the context of frequent risk events.

analysis:Under an effective trust arrangement, the assets entrusted by clients are legally regarded as trust property, which is independent of the trustee and the OTC platform operator's own assets. Once the operator or trustee encounters financial difficulties, the client assets in the trust are not considered as their bankruptcy property in principle and are protected by law.

 

Schematic diagram of asset isolation effect (through trust)

 

4.Discussion on the potential compliance of non-identical name payment

Elaboration:In complex OTC transactions, the name of the receiving account may be inconsistent with the name of the ultimate beneficiary customer, which may easily lead to the risk of bank anti-money laundering review.

analysis:Under a trust structure that is strictly designed and operated in compliance, an independent trustee will open and manage bank accounts for multiple beneficiaries on behalf of the trust. On the premise of conducting a comprehensive CDD/KYC and AML review of each beneficiary and the source of their funds, the trustee will transfer funds within the trust account or make payments to or from the outside according to the beneficiary's instructions, which in theory provides a structural solution for the compliance handling of "non-identical name" fund flows.However, extreme caution must be exercised and AML/CFT obligations must not be circumvented. Transparency and regulatory accessibility must be ensured, and professional legal advice is strongly recommended.

 

5.Compliance of managed functions

Elaboration:OTC transactions without immediate delivery inevitably involve custody of customer assets, which is the core challenge.

analysis:One of the core functions of a trust is asset holding, control and management. Placing client assets under a trust structure, with professional trustees assuming custody responsibilities, provides a clear legal basis, operational framework and fiduciary responsibility guarantee, and reflects a prudent attitude towards the safety of client assets.

 

6.Flexibility for business expansion

Elaboration:OTC platforms may wish to expand into more comprehensive virtual asset services in the future.

analysis:The trust structure is highly flexible and can provide the underlying legal structure and asset holding platform for the future expansion of high value-added services such as asset management, family office services, and wealth inheritance planning, supporting business diversification and in-depth development.

 

7.Bank account convenience

Elaboration:Pure Crypto companies face huge challenges in opening accounts in mainstream banks around the world (“de-banking” risks).

analysis:Compared with unlicensed Crypto OTC entities, operating the fund handling link through a standardized trust structure (such as a licensed TCSP as a trustee) may show a higher willingness to comply, transparency and clarity of customer asset isolation, and receive relatively positive reviews when communicating with local banks in Hong Kong to open accounts. However, this is not an absolute guarantee, and banks will still conduct strict due diligence.

 

4.2 Outlook on the regulatory trends of virtual assets in Hong Kong

• Continuous improvement and dynamic adjustment:
  
  Regulators will pay close attention to market developments, technological innovations and potential risks, and continue to review and update regulatory rules. For example, the regulation of emerging areas such as DeFi and NFTs (non-fungible tokens) may be gradually clarified.
• Strengthen cross-border regulatory cooperation:
  
  With the global nature of virtual assets, Hong Kong regulators will further strengthen regulatory cooperation with international organizations (such as FATF, FSB, IOSCO) and other major jurisdictions to jointly combat illegal activities such as cross-border money laundering and terrorist financing, and promote consistency in regulatory standards.
• Technology empowers supervision (RegTech and SupTech):
  
  The SFC and HKMA are expected to encourage and apply regulatory technology (RegTech) to improve the compliance efficiency and effectiveness of licensed institutions. They will also explore the application of regulatory technology (SupTech) in their own regulatory work, such as using big data and AI for market monitoring and risk identification.
• Balancing innovation and risk, and sticking to the bottom line:
  
  Hong Kong will continue to seek a balance between supporting financial technology innovation and maintaining financial stability and protecting investors. Supervision will remain prudent in areas with systemic risks or higher investor risks.
• Further development and deepening of RWA and tokenization:
  
  With the advancement of the "ASPI-Re" roadmap and the exploration of related infrastructure (such as the digital Hong Kong dollar CDBC), it is expected that Hong Kong will have more policy support and innovative practices in promoting the tokenization of real-world assets, and the integration of traditional finance and virtual assets will be further deepened.
• More detailed investor protection measures:
  
  More targeted investor education, risk disclosure and suitability requirements may be introduced for different types of virtual assets and investor groups.

 

4.3 Recommendations for future compliance strategies

For companies committed to developing Hong Kong’s virtual asset market, the following compliance strategies are essential:

• Embrace regulation and proactively comply with regulations:
  
  Treat compliance as the core competitiveness of corporate development rather than an operational burden. Actively understanding and complying with various regulatory requirements is a prerequisite for building market trust and achieving sustainable development.
• Build a strong internal compliance culture and systems:
  
  Compliance should start from the top management and permeate into every level of corporate operations. Establish a sound internal compliance policy, process, monitoring mechanism and accountability system.
• Continue to pay attention to regulatory developments and stay agile:
  
  The regulatory environment for virtual assets is changing rapidly. Companies need to set up dedicated mechanisms or personnel to closely track the latest guidelines, circulars and regulatory revisions issued by regulatory agencies such as the SFC and HKMA, and adjust their business and compliance strategies in a timely manner.
• Increase investment in technology and talent:
  
  Invest in RegTech solutions, such as automated KYC/AML tools, transaction monitoring systems, blockchain analysis tools, etc., to improve compliance efficiency and accuracy. At the same time, cultivate and recruit professionals with dual backgrounds in virtual assets and financial compliance.
• Seek professional external support and establish a cooperative network:
  
  Establish long-term partnerships with experienced compliance consultants, law firms, auditors and technology security companies. These professional organizations can provide the latest regulatory interpretation, compliance program design, license application support and professional advice on responding to regulatory reviews.
• Strengthening communication with regulators:
  
  When encountering compliance questions or planning to launch new products/services, you should proactively communicate with regulators to understand their regulatory expectations and potential concerns. Maintaining transparent, candid and constructive communication will help build good relationships and reduce compliance risks.
• Conduct a proactive risk assessment:
  
  Not only should we meet current compliance requirements, but we should also anticipate possible regulatory changes and emerging risks in the future and prepare in advance.

 

Conclusion: Seize the opportunities of virtual assets in Hong Kong and move forward in a compliant and steady manner

Hong Kong, with its profound foundation as an international financial center, sound legal environment and the SAR government's firm determination to develop virtual assets, is rapidly emerging as the focus of global virtual asset innovation and regulation. From the initial regulation of STO, to the comprehensive licensing of VATP, to the clear regulatory path for stablecoins and RWA tokenization, Hong Kong's virtual asset regulatory framework is becoming increasingly mature and complete, providing market participants with unprecedented development opportunities.

However, opportunities and challenges coexist. While embracing innovation, companies must deeply realize that compliance is the cornerstone and lifeline for their long-term development in the Hong Kong virtual asset market. Only by strictly complying with regulatory requirements and establishing a robust risk management and internal control system can they stand out in the fierce market competition and win the trust of investors and regulators.

As a professional virtual asset compliance consulting company, Aiying is committed to helping clients understand Hong Kong's complex regulatory environment, tailor compliance solutions, efficiently apply for required licenses, and establish a sustainable compliance operation mechanism. We believe that through close cooperation with professional partners, companies will be able to better grasp the historic opportunities of Hong Kong's virtual asset market, achieve steady and rapid development on a compliant track, and jointly contribute to Hong Kong's construction of a world-leading virtual asset center.

 

Introduction of Hong Kong core team members

Jamie Lin

Graduated from the University of Hong Kong, qualified as a lawyer in Hong Kong, England and Wales. Proficient in Mandarin, Cantonese, English and Spanish. Jamie has more than 10 years of experience in financing, capital markets and litigation. He has been providing legal advice to crypto clients since 2019. Clients include exchanges (including centralized and decentralized exchanges), investment/asset management companies, funds, DeFi projects, mining pools and high net worth individuals. Services include legal structure and business strategy advice, commercial contracts, investment and financing/M&A transactions, corporate governance, marketing and public relations, license applications, regulatory compliance, etc.

 

Peter Gao

Graduated from the University of London and Griffith University, Australia, with an Australian Diploma in Legal Practice. Proficient in Mandarin, Cantonese and English. Providing legal services to crypto clients since 2022, including commercial contracts, investment and financing/M&A transactions, corporate governance, license applications, regulatory compliance, anti-money laundering, etc.

Relevant laws and regulationsSFCList of official guidance documents (Some examples)

• Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Chapter 615 of the Laws of Hong Kong)
• Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
• SFC "Guidelines for Virtual Asset Trading Platform Operators"
• SFC "Guidelines on Combating Money Laundering and Terrorist Financing (Applicable to Licensed Corporations and Licensed Virtual Asset Services)"
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• SFC "Frequently Asked Questions about Virtual Assets"
• SFC Statement on Initial Token Offerings
• SFC Position Paper: Regulating Virtual Asset Trading Platforms
• HKMA Consultation Paper and Conclusions on the Regulatory Regime for Stablecoin Issuers

FSTB/SFC consultation document on regulation of over-the-counter (OTC) trading of virtual assets

Note: Please refer tosfc (www.sfc.hk) AndHKMA (www.hkma.gov.hk) Get the latest and most complete official website

Regulations and guidance documents.