Hong Kong Securities and Futures Commission’s half-year review 35 events discussing virtual assets, issuing new exchange licenses.

Author | Carl

Editor | Marco

In promoting the compliant development of the virtual asset industry, the Hong Kong Securities and Futures Commission (SFC) has submitted its answer sheet for the first half of the year.

The SFC recently released its latest quarterly report, highlighting the new licensing regime for virtual asset trading platforms as a headline measure for regulatory optimization. In terms of communication and education, the SFC participated in over 35 activities discussing virtual assets, and conducted investor education through television, educational activities, publications, and other forms.

From public media reports, it can be seen that the SFC’s Chief Executive Officer, 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 related distributed ledger technology and responsible innovation concepts.

1. 35 activities related to virtual assets

On August 23, the Securities and Futures Commission of Hong Kong released the “Quarterly Report for April to June 2023” (hereinafter referred to as the “Report”), which mentioned “virtual assets” 26 times. In the communication and education section of the report, “virtual assets” runs through almost all the work of the SFC.

The report pointed out that in terms of speaking engagements, senior executives of the SFC participated in over 35 local and international events during this quarter, delivering speeches on topics such as virtual assets, promoting and interpreting the new licensing regime for virtual asset trading platforms in Hong Kong, and deepening the industry’s understanding of the new regime.

On April 12th of this year, the “2023 Hong Kong Web3 Carnival” brought together global Web3.0 practitioners. Tsai Chung Fai, Acting Head of the Intermediaries Division of the SFC, 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 Fai called on all relevant market participants to actively engage in discussions and constructive dialogues with the SFC.

On April 27th, Ashley Alder, the Chief Executive Officer of the SFC, participated in a one-on-one interview program with Bloomberg, where 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 related distributed ledger technology and responsible innovation concepts.

Ashley Alder also attended two events held in Bangkok, Thailand in June.

On June 13th, she delivered a keynote speech titled “Hong Kong’s New Licensing Regime for Virtual Assets,” stating 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 various 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 the tokenization of funds at multiple conferences.

On June 5th, Ashley Alder attended the 16th Annual Conference of the Hong Kong Investment Funds Association and delivered a speech, expressing support for the tokenization of funds to improve industry efficiency.

According to media reports, Elizabeth Wong, head of the Fintech unit of the Securities and Futures Commission, revealed at another conference in June that the commission is actively studying the benefits of tokenization while ensuring that “if tokenization is used, investors’ situation will not become worse.” 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 in order to promote communication between banks and the virtual asset industry and to encourage banks to provide banking services to licensed virtual asset trading platforms, the Securities and Futures Commission and the Hong Kong Monetary Authority held two roundtable meetings.

Several virtual asset agency executives told Techub News that practitioners in Hong Kong generally encounter difficulties in opening bank accounts, which is currently a pain point in the industry. Although the Hong Kong government has been promoting communication and exchange from multiple parties, it still takes time to resolve.

Stanley Hui, the former CEO of Zhongan Bank, said that the key to this issue lies in whether banks understand the specific industries engaged in by Web3.0 enterprises. Banks are concerned about issues such as money laundering and problematic business counterparts. Zhongan Bank embraces Web3.0 and hopes to support the development of this industry and explore some regulations.

2. New licensing system implemented within 10 months

In the “Summary” section on the report’s homepage, “virtual assets” is listed under “regulatory optimization measures.” The report stated that consultation summaries have been issued on regulatory requirements applicable to licensed virtual asset trading platform operators, and relevant guidelines applicable to these operators have been released. The new licensing system came into effect on June 1, 2023.

Industry analysts said that the speed at which the Securities and Futures Commission of Hong Kong has pushed for the new licensing system for virtual asset exchanges is unprecedented. It took less than 10 months from Hong Kong deciding to embrace Web3.0 to the implementation of the new licensing system and virtual asset exchanges obtaining licenses.

On October 31, 2022, the Hong Kong SAR Government issued the “Policy Statement on Hong Kong’s Virtual Asset Development,” stating that Hong Kong holds an open and inclusive attitude towards innovators engaged in virtual asset businesses worldwide, and Hong Kong is stepping up preparations for a new licensing system for virtual asset service providers.

On June 1, 2023, the new licensing system for Hong Kong’s virtual asset exchanges officially began implementation, and the Securities and Futures Commission announced that it would start accepting new license applications.

Prior to this, in May, the Securities and Futures Commission released consultation summaries and guidelines applicable to virtual asset trading platform operators, explaining the standards that the new virtual asset trading platform licensing system should meet, including the secure custody of assets, segregation of client assets, avoidance of conflicts of interest, and network security, among others.

In order to help the industry understand the new licensing system, the Securities and Futures Commission of Hong Kong has also released a series of publications, including the “Licensing Handbook for Virtual Asset Trading Platform Operators,” a circular on the implementation details and transitional arrangements of the new system, and frequently asked questions regarding licensing and conduct.

The website of the Securities and Futures Commission of Hong Kong has newly set up a dedicated page, which integrates various practical materials, such as online application forms.

On August 3, Hong Kong virtual asset exchanges HashKey and OSL announced on the same day that they had obtained the approval to upgrade their Type 1 (dealing in securities) and Type 7 (providing automated trading services) licenses from the Securities and Futures Commission of Hong Kong. Their business scope has expanded from professional investors to retail investors.

Under the new licensing system, all virtual asset trading platforms in Hong Kong are required to obtain licenses from the Securities and Futures Commission. HashKey and OSL already held Type 1 and Type 7 licenses in Hong Kong, so they were able to complete the license upgrade through a simplified process, 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 issues warnings about relevant risks.

The report points out that the Securities and Futures Commission has strengthened investor education through various means, such as accepting television interviews with Hong Kong Radio Television, and has launched a new round of investor education activities in collaboration with its subsidiary, the Investor and Financial Education Council.

On August 7, the Securities and Futures Commission issued a warning stating that some unlicensed platforms falsely claimed to have submitted license applications to the Securities and Futures Commission of Hong Kong, and most of the virtual asset trading platforms accessible to the public are not regulated. The Securities and Futures Commission of Hong Kong will update the list of licensed trading platforms in a timely manner.

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