Last month, SFC Chief Executive Officer Leung Fung-yee said the SFC will take a number of measures to strengthen information release and investor education related to virtual asset trading platforms. These measures include:
1. Publish four lists of virtual asset platforms online, including a list of licensed platforms, a list of closed platforms, a list of platforms deemed to have obtained licenses, and a list of new applicants.
The four virtual asset trading platforms that are applying for licenses are: HKbitEX, HKBGE, HKVAX and Victory Securities.
2. Release a list specifically targeting suspicious virtual asset trading platforms to help the public be more alert to local unlicensed or platforms with suspicious operating practices. The SFC website will publish the list and consider providing more information on unregulated virtual asset platforms to alert the public early.
3. We will work with the Investor and Financial Education Committee to launch a series of public publicity activities to raise the public's awareness of fraud prevention, and strengthen investor education through the media, social media, lectures, etc., to deepen the public's understanding of fraudulent activities related to the risks of virtual assets.
4. Strengthen intelligence gathering, follow up and take legal action against suspected illegal trading platforms. For example, if fraud is involved, the platform will be handed over to the police as soon as possible, and the public is encouraged to file complaints about suspicious activities through the SFC complaint form.
5. We will explore with the police the possibility of setting up a dedicated channel to share information on suspicious activities and irregularities on virtual asset trading platforms, and continue to work closely with the Hong Kong SAR Government to review the regulatory system from time to time in response to new market trends.
Ms Leung Fung-yee reminded the public that scams are difficult to detect in advance and that the public should be highly vigilant and beware of high-interest traps. They should not blindly trust the recommendations of online KOLs and should use regulated virtual asset platforms if they want to invest.
Huang Lexin, director of the licensing department of the intermediaries department of the Hong Kong Securities and Futures Commission, said on Friday that the Securities and Futures Commission will strictly review the license applications of virtual asset trading platforms, and said that if these platforms applying for licenses are ultimately not granted licenses, they must terminate their businesses in an orderly manner.
In this context, according to reports from Hong Kong 01 and East Net, Huang Lexin, Director of the Licensing Division and Head of the Financial Technology Group of the SFC's Intermediary Institutions Department, emphasized on the IFCC program on Friday that the platforms on the list of license applicants published on the SFC website have not yet been licensed and do not necessarily mean that they will be able to successfully obtain a license in the future. She emphasized:
If these platforms that apply for licenses are not finally issued licenses, they will have to close their business in an orderly manner. The platforms on the list of licensed trading platforms are the ones that actually hold licenses issued by the CSRC.
Previously, several world-renowned exchanges have announced that they will take action, including Huobi, OKX, Gate.io, Bitget and ByBit. However, the Hong Kong Securities Regulatory Commission has only disclosed information on the following four companies, and it is unclear what the current application progress of these trading platforms is.
Hong Kong Securities and Futures Commission: Will strictly review and approve license applications
Huang Lexin pointed out that the CSRC will strictly review applications from virtual asset trading platforms and will adopt the principle of "same business, same risks, same rules", requiring platforms to comply with all regulatory requirements like traditional financial institutions such as securities firms. Approval requirements include financial stability, suitable candidates for responsible persons and directors, proper custody of customer assets by the platform, information security, implementation of KYC verification and anti-money laundering procedures, prevention of market manipulation and illegal activities, accounting and auditing, risk management, avoidance of conflicts of interest, etc.
Currently, the SFC only allows licensed platforms (Hashkey and OSL) to provide trading of Bitcoin and Ethereum, and still prohibits the provision of other services or activities such as pledge, margin trading, proprietary trading, etc., because they may involve conflicts of interest. Before listing virtual assets for trading, the platform must also conduct due diligence to ensure that the relevant assets meet the token inclusion criteria, and must be approved by the SFC, and must disclose sufficient information to investors.
Huang Lexin also mentioned that before virtual asset trading platforms open up to retail investors, they must assess retail investors’ knowledge of virtual assets and risk tolerance, and also refer to investors’ financial and personal conditions to set investment limits for customers. She reminded that Hong Kong investors should choose licensed platforms for trading, and refer to the SFC’s list of licensed platforms when in doubt. She also pointed out that virtual assets are high-risk products, and investors need to consider their own risk tolerance, do their homework before investing, and never follow the trend of speculation.
Editor's note: The licenses currently referred to by the CSRC still refer to the upgraded No. 1 and No. 7 licenses, not the VASP in the virtual asset VASP licensing system newly implemented on June 6 this year.
The core points of the new system are:
- All centralized virtual asset exchanges that operate in Hong Kong or actively promote their services to Hong Kong investors, regardless of whether they provide security token trading services, must be licensed and regulated by the SFC.
- The SFC will implement measures to allow licensed virtual asset exchanges to provide services to retail investors in the second half of the year, but only tokens that are not securities and have high liquidity in one of the traditional financial indexes can be offered to retail investors.
- For stablecoins, the regulatory arrangements for stablecoins will be implemented in 2023/24, and a licensing and permitting system for stablecoin-related activities will be established. Before stablecoins are regulated, the SFC believes that stablecoins should not be included for retail trading.
Let's compare the old and new systems:
It can be said that there are currently two sets of licensing systems operating simultaneously in Hong Kong. The so-called compliant exchanges are all exchanges under License No. 1 and License No. 7, not exchanges under the new system. So far, the number of new VASPs approved is 0.