Hong Kong lawyers interpret new regulations on virtual asset trading from six aspects

On May 23, the Hong Kong Securities and Futures Commission announced that the “Guideline on Virtual Asset Trading Platform Operators” will be officially implemented from June 1st and that virtual asset trading platform operators can apply for licenses. Licensed virtual asset trading platforms will be able to provide services to retail investors, and it is expected that platforms will be licensed as early as the second half of this year.

 Wu Wenqian, a practicing lawyer in the Hong Kong Special Administrative Region High Court, was interviewed by Techub.News about the above guidelines and analyzed their impact on the virtual asset market.

 Wu Wenqian is the compliance partner of TKX Capital and a partner of Mulana Capital. He has led the legal and compliance functions of Huobi and OKX encrypted exchanges and provided consulting services for encrypted projects and funds that have raised more than $200 million in total.

 Wu Wenqian’s analysis is as follows:

1. VASP platforms can provide services to retail investors, but they need special knowledge and risk tolerance assessment. Professional individual investors also need this assessment.

2. Do not provide derivatives for trading virtual assets, do not provide quantitative trading, algo trading, yield/output, lending and other services.

3. Listing:

– VASP platforms must conduct due diligence on each token before accepting it for listing.

– At least 12 months of track record is required before listing.

– Third-party smart contract audits are required prior to listing.

– The trading pairs given to retail investors must be qualified large-cap virtual assets, including those acceptable in at least two independent index providers.

– Proof is required that the listed coins fully comply with Hong Kong laws.

– Stablecoins cannot be used in retail trading pairs.

4. Wallet and compensation arrangements

– At least 98% of customer virtual currency must be stored in cold wallets, with 50% insurance or compensation coverage. The highest 2% of customer virtual assets must be stored in hot wallets or other warehouses, with 100% insurance or compensation coverage.

– Reserve funds used for compensation can include virtual assets, as well as demand deposits or short-term fixed deposits.

– Added bank guarantees from Hong Kong banks as a possible compensation arrangement.

5. Safekeeping and Security Requirements

– Third-party custodians are not allowed.

– All seeds and private keys need to be securely stored in Hong Kong, and have appropriate certifications, such as hardware security modules.

6. The SFC will adopt a simplified application procedure for Type 1, Type 7 licenses, and VASP licenses, so that only one comprehensive application needs to be submitted.

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