In promoting the compliant development of the virtual asset industry, the Hong Kong Securities and Futures Commission (SFC) has handed in its answer sheet for the first half of the year.
In promoting the compliant development of the virtual asset industry, the SFC has released its latest quarterly report, listing the new licensing regime for virtual asset trading platforms as the headline of regulatory optimization measures. In terms of communication and education, the SFC has participated in over 35 events discussing virtual assets and has conducted investor education through television, educational activities, publications, and other means.
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From public media reports, it can be seen that the SFC’s CEO, Ashley Alder, frequently attends events to promote and interpret the licensing regime for virtual asset trading platforms. She stated that cryptocurrency trading is an important part of the virtual asset ecosystem, and the SFC supports the related distributed ledger technology and responsible innovation concepts.
1. 35 events related to virtual asset topics
On August 23, the Securities and Futures Commission of Hong Kong released its “Quarterly Report April to June 2023” (referred to as the “Report”), which mentioned “virtual assets” 26 times. In the communication and education section of the report, “virtual assets” permeated almost all of the SFC’s work.
The report pointed out that in terms of speaking engagements, senior executives of the SFC participated in over 35 local and international events this quarter and delivered speeches on topics related to virtual assets. They promoted and interpreted the new licensing regime for virtual asset trading platforms in Hong Kong, deepening the industry’s understanding of the new system.
On April 12 this year, practitioners of the global Web3.0 gathered at the “2023 Hong Kong Web3 Carnival.” Tsai Chung-hui, the interim head of the SFC’s intermediary supervision department, delivered a speech at the conference, stating that the potential of Web3 and virtual assets will be unleashed. Starting from June, virtual asset trading platforms will be licensed by the SFC to protect investors. Tsai Chung-hui called on all market participants to actively engage in discussions and constructive dialogues with the SFC.
On April 27, Ashley Alder, the CEO of the SFC, participated in a one-on-one interview program with Bloomberg. She stated that the SFC’s key work includes the licensing regime for virtual asset trading platforms, which is an important cornerstone of the third-generation Internet (Web3) ecosystem. The SFC supports the related distributed ledger technology and responsible innovation concepts.
Ashley Alder also participated in two events held in Bangkok, Thailand, in June.
On June 13, Ashley Alder delivered a keynote speech titled “Hong Kong’s New Licensing Regime for Virtual Assets,” in which she stated that cryptocurrency trading is an important part of the virtual asset ecosystem. Hong Kong’s regulatory framework comprehensively covers the interaction between the public and all aspects of virtual assets, ensuring investor protection while considering the risks faced by financial institutions.
The Securities and Futures Commission of Hong Kong expressed support for fund tokenization at multiple conferences.
On June 5th, Julia Leung attended the 16th Annual Conference of the Hong Kong Investment Funds Association and delivered a speech, expressing support for fund tokenization to improve industry efficiency.
According to media reports, Elizabeth Wong, the head of the Financial Technology Division of the SFC, revealed at another conference in June that the SFC is actively studying the benefits of tokenization while ensuring that “the situation of investors will not worsen if tokenization is used.” She said, “We support tokenization and are willing to discuss the tokenization of public funds with the industry.”
In addition, the report also pointed out that to promote communication between banks and the virtual asset industry and to encourage banks to provide services to licensed virtual asset trading platforms, the SFC and the Hong Kong Monetary Authority held two roundtable meetings.
Several virtual asset institutional leaders told Techub News that practitioners in Hong Kong generally encounter difficulties in opening bank accounts, which is a pain point in the industry. Although the Hong Kong government has been promoting communication and exchanges among various parties, it still takes time to resolve the issue.
Xian Diyun, the former CEO of Zhongan Bank, said that the key to this issue lies in whether banks understand the specific industry that Web 3.0 enterprises are engaged in. Banks are concerned about money laundering and problems with business counterparts. Zhongan Bank embraces Web 3.0 and hopes to support the development of this industry and explore some regulations.
2. New licensing system implemented within 10 months
In the “Summary” on the homepage of the report, “virtual assets” is listed as the headline for “regulatory optimization measures”. The report points out that it has issued a consultation summary on regulatory provisions applicable to operators of licensed virtual asset trading platforms and has issued relevant guidelines for these operators. The new licensing system came into effect on June 1, 2023.
Industry analysts believe that the speed at which the SFC promotes the new licensing system for virtual asset exchanges is unprecedented. From the decision of Hong Kong to embrace Web 3.0 to the implementation of the new licensing system and the issuance of licenses to virtual asset exchanges, it took less than 10 months.
On October 31, 2022, the Hong Kong SAR Government issued the “Policy Statement on the Development of Virtual Assets in Hong Kong”, which stated that Hong Kong adopts an open and inclusive attitude towards innovative personnel worldwide engaged in virtual asset businesses. Hong Kong is intensively preparing for a new licensing system for virtual asset service providers.
On June 1, 2023, the new licensing system for virtual asset exchanges in Hong Kong officially began to be implemented, and the SFC announced that it started accepting applications for new licenses.
Prior to this, in May, the SFC issued a consultation summary and the “Guidelines for Operators of Virtual Asset Trading Platforms”, which outlined the standards that the new virtual asset trading platform licensing system should meet, including the secure custody of assets, segregation of customer assets, avoidance of conflicts of interest, and network security, among others.
In order to help the industry understand the new licensing system, the Hong Kong Securities and Futures Commission has also issued a series of publications, including the “Licensing Handbook for Operators of Virtual Asset Trading Platforms,” a circular on the implementation details and transitional arrangements of the new system, and frequently asked questions regarding licensing and conduct.
The Hong Kong Securities and Futures Commission website has set up a dedicated page, which integrates various practical information, such as online application forms.
On August 3, the Hong Kong virtual asset exchanges HashKey and OSL announced on the same day that they have obtained the approval for upgrading their Type 1 (Dealing in Securities) and Type 7 (Providing Automated Trading Services) licenses from the Hong Kong Securities and Futures Commission. Their business scope has been expanded from professional investors to retail investors.
Under the new licensing system, all virtual asset trading platforms in Hong Kong must obtain a license from the Securities and Futures Commission. HashKey and OSL already held the Type 1 and Type 7 licenses, so they can complete the license upgrade through a simplified procedure, while the application process for other trading platforms is relatively complex.
The Securities and Futures Commission emphasizes the importance of compliance for virtual asset trading platforms through various educational activities, and alerts to related risks.
The report pointed out that the Securities and Futures Commission has strengthened investor education through activities such as accepting television interviews by Hong Kong Radio, and launched a new round of investor education activities with its subsidiary, the Investor Education and Financial Education Committee.
On August 7, the Securities and Futures Commission issued a warning stating that certain unlicensed platforms falsely claimed to have submitted license applications to the Hong Kong Securities and Futures Commission. Most of the virtual asset trading platforms accessible to the public are not regulated. The Securities and Futures Commission will update the list of licensed trading platforms in a timely manner.