Hong Kong's virtual asset industry is regulated by the Hong Kong Securities and Futures Commission.Since the "Statement on the Regulatory Framework for Virtual Asset Portfolio Managers, Fund Distributors and Trading Platform Operators" was put forward in 2018, the Hong Kong Securities and Futures Commission has been active and carried out a large number of virtual asset industry research. In 2019, it launched the Virtual Asset Regulatory Sandbox Program to conduct experimental supervision on virtual asset platforms that voluntarily join and meet the requirements.
On November 2019, 11, the Hong Kong Securities and Futures Commission issued the "Warning on Virtual Asset Futures Contracts" and the "Position Paper: Regulating Virtual Asset Trading Platforms". The SFC believes that the conditions for regulating virtual asset trading platforms are in place. In the "Position Paper", the Hong Kong Securities and Futures Commission announced the regulatory framework applicable to virtual asset trading platforms that provide trading services for at least one security token.
Crypto Industry Licensing Updates
HuobiIt was announced in March this year that the Hong Kong Securities Regulatory Commission has granted Type 3 (providing advice on securities) and Type 4 (providing asset management) regulated activity licenses to the company's wholly-owned subsidiary Huobi Asset Management.
OSL, a digital asset trading platform under BC Technology GroupIt also announced that it had obtained Type 1 (Securities Trading) and Type 7 (Providing Automated Trading Services) licenses issued by the Hong Kong Securities and Futures Commission, becoming the world's first digital asset trading platform licensed by the Hong Kong Securities and Futures Commission.
The most relevant license types for the crypto asset industry
The Hong Kong Securities and Futures Commission regulates a total of 10 types of activities, and relevant companies can apply for relevant licenses.Among them, Category 1 (Securities Trading), Category 7 (Providing Automated Trading Services), and Category 9 (Providing Asset Management)Regulated activity licenses are most closely related to the virtual asset industry, as shown in the figure below:
1. Operating in Hong KongVirtual Asset Trading PlatformCompanies that intend to provide trading services for at least one security token on their platform must apply to the Hong Kong Securities and Futures Commission forLicences for Type 1 and Type 7 regulated activities.OSL has obtained Type 1 (Securities Trading) and Type 7 (Providing Automated Trading Services) licenses issued by the Hong Kong Securities and Futures Commission, becoming the world's first digital asset trading platform licensed by the Hong Kong Securities and Futures Commission.
2. Hong Kong No. 1 licenses are divided into large and small.Big brands are brokers who can provide clients with securities product buying and selling services. Small brands are middlemen and introducers who can only recommend clients to brokers to buy securities products.There are more than 1 Hong Kong No. 03 licenses (including big and small licenses) issued by the SFC, and the number has only increased by 1 to XNUMX from XNUMX to now. It is still relatively difficult to apply for a Hong Kong No. XNUMX license.
3,Hong Kong No. 9 license is also known as Hong Kong asset management license. Many private equity institutions in the mainland, especially some well-known private equity institutions, have chosen to apply for No. 9 license.It is not easy for private equity firms in the mainland to obtain a Type 9 license. In addition to the high cost and difficulty in finding talent, there are also problems such as queuing and uncontrollable application time. Therefore, in order to control costs, "test the waters" for overseas business, and have overseas product performance as soon as possible, many private equity firms have also chosen to cooperate with licensed asset management institutions to enter overseas markets.
4. License No. 9 itself only supports the provision of traditional financial services and does not include digital currency business.If your company wishes to operate a digital currency fund in compliance with regulations, it will need to submit an additional report to the SFC on top of the No. 9 license and apply for a certain proportion of digital currency business in the fund.As fund performance improves, the proportion of digital currency funds can be gradually increased..
5. Generally speaking,forFor institutions that provide both trading services and consulting services to clients.Hong Kong financial licenses No. 1 and No. 9 and license No. 4 will be used togetherAmong them, License No. 4 is a transaction consulting type license. If you want to provide this kind of consulting service to investors in Hong Kong, you also need to obtain such a financial license.
Licence Application Conditions
Method 1: Apply directly
Companies established in Hong Kong must have a simple shareholder structure, the identity of the ultimate beneficiary/actual controller, and the shareholders and directors must meet the "suitable person requirements".
During the application process, the financial status and character of major shareholders and directors will be carefully verified in the form of a form. Among them, a major shareholder is a person who holds more than 10% of the shares of the licensed company, or a person who holds 35% of the shares of a company that controls the licensed company.
Different license types have different requirements for applicants’ capital. Please see the figure below for details:
This also includes proof of shareholder's source of funds and legality, funding requirements for the planned business, and legal requirements for registered capital.
There are also clear requirements for regular reporting of financial status. Under normal circumstances, licensed corporations must submit a financial resource declaration form to the SFC every month; corporations with Category 9 licenses and those whose licenses are subject to conditions that prohibit them from holding client assets only need to submit a financial resource declaration form every six months.
The main thing is that the law requires at least one "responsible officer RO" to manage the company, but when applying for a license, or after being granted a license to operate in the future, the Hong Kong Securities and Futures Commission requires at least two "responsible officers RO" to be employed.
Among them, ROs are divided into big and small brands. Big brand ROs are those who have been in the position before and have relevant licensed RO experience. Small brand ROs are those who have passed the relevant HKSI examinations and have relevant industry experience.
Taking the data of RO No. 9-2017 as an example, the monthly salary of a pure listing without participating in the company's management and operation is about 5-6 Hong Kong dollars, which depends on experience and bargaining power. If you need to participate in the company's operation and management, the monthly salary will be as high as 10 Hong Kong dollars.
AiYing reminds you that there may be channels that recommend the use of listed ROs, that is, ROs that do not participate in actual business but are merely listed within the enterprise.The biggest advantage of using a listed RO is that it can save a lot of costs. The median salary of a normal RO is 10-12 Hong Kong dollars per month. If it is a well-known company, such as Goldman Sachs, the RO who has worked there will have a higher annual salary. However, the salary of a listed RO will be much lower, about 3-5 per month.
However, using a registered RO is a violation of regulations. Once discovered by the SFC, the consequences will be serious. It is recommended that all companies follow the formal licensing procedures and do not take chances or violate regulations.
Method 2: Acquisition
Generally, the acquisition of non-listed licensed companies in Hong Kong by private enterprises from the mainland mainly involves the Securities and Futures Ordinance at the Hong Kong legal level.
If the licensed company is a listed company, it will also touch upon the Listing Rules and the Takeover Code. The acquisition of a Hong Kong licensed company is essentially a "change of the major shareholder of the licensed company". The specific process is as follows:
1. The licensed company submits an application to the Hong Kong Securities and Futures Commission to change or increase the major shareholder. The key to the application is the Securities and Futures Commission's review of the identity of the licensed company's major shareholders. Each level of companies and individuals identified as major shareholders and the company's directors must fill out an application form and file it with the Securities and Futures Commission.
2. The acquiring entity must provide relevant asset certificates, usually asset certificates or financial statements issued by a bank. The acquiring entity must ensure that it has sufficient financial strength to fulfill the acquisition contract and can guarantee the subsequent development of the licensed company.
3. The CSRC will focus on reviewing whether the acquiring company has the qualifications to become a major shareholder of a licensed company.
Is the acquired company in the same industry? If the acquired company is in the financial industry, it is relatively suitable. If the acquired company is in other industries, a complete and reasonable business plan is required.
Will the business model of the licensed company change significantly after the change in equity structure? Will there be any conflict of interest?
For example, if the acquiring company is a private equity fund management company in the Mainland, then it is engaged in exactly the same business as the acquired company. The CSRC will consider whether there is a possibility of cross-trading between the two, whether there is a possibility of market manipulation, and whether the interests of one party's investors will be harmed to benefit the other party.
Therefore, it is necessary to establish a complete risk control system and isolation measures, and the staffing should be reasonable and sufficient.
- Ongoing responsibilities after the acquisition of a licence
1. The company must maintain the qualifications of a fit and proper person and comply with all applicable provisions of the Securities and Futures Ordinance and its subsidiary legislation.
2. The company must submit audited accounts and financial returns regularly. If there are any changes in the company's business, it must notify the CSRC within a specific time limit.
1. Licensed company debt and creditor claim risks.
2. Sunk costs in the acquisition process. The transaction process involves a lot of time, capital and manpower costs.
3. The acquisition price of the target assets is too high. In recent years, with more and more mainland companies competing to acquire Hong Kong licensed companies, the market competition is fierce, and the prices of existing licensed companies that can be acquired have soared sharply in recent years.
4. Hong Kong policy risks. The latest circular from the Hong Kong Securities and Futures Commission indicates that the Hong Kong Securities and Futures Commission will not encourage such arrangements and will question whether the senior management of licensed corporations has properly supervised the regulated activities of the corporations and properly managed the risks involved in their businesses. Licensed corporations and responsible persons may be subject to sanctions, including public reprimands and license revocation.
Application cycle
It generally takes 6 months to apply for an SFC financial license, and the time period for acquiring a license is much shorter, roughly 3-4 months.
Similar to the Singapore PSA license application, this is only the general application period length. The actual period will vary depending on the applicant's own situation and whether there is professional guidance.
