New Hong Kong licence for Virtual Asset Service Providers postponed to 1 June 2023

• Hong Kong

• Privacy, data protection and cybersecurity - ePrivacy
• Technology, Media and Telecoms - General

08-12-2022

The Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022 (“AMLO Amendment Bill”) has now been passed. The Legislative Council also published a paper reporting the deliberations of the Bills Committee on the AMLO Amendment Bill, which sets out updates to the Virtual Asset Service Provider (“VASP”) licensing regime in Hong Kong. For details of the VASP licensing regime under the AMLO Amendment Bill, please refer to our previous article here.

A number of key points are set out in the latest paper by the Legislative Council:

1. the provisions in relation to the restrictions on carrying on a business of providing virtual assets (“VA”) service and the transitional arrangements for VASP regime under the AMLO Amendment Bill will commence only from 1 June 2023 (instead of the original commencement date at 1 March 2023). As a result, to obtain the “deemed licence”, pre-existing VA service providers will need to make a VASP licence application with the Securities and Futures Commission (“SFC”) within the first 9 months from 1 June 2023 and confirm it will comply with the applicable regulatory requirements;

2. while overseas VA exchanges may require a VASP licence if they “actively market” to the Hong Kong public under the AMLO Amendment Bill, the SFC has clarified that it is likely that the term “actively market” under the new VASP licensing regime will be interpreted in a manner similar to that under the Securities and Futures Ordinance (Cap. 571) (“SFO”) (see FAQ on “actively markets” under the SFO here);

3. not all non-fungible tokens (“NFT”) will be considered as a VA. In most cases, where an NFT merely represents a genuine digital representation of a collectible, it will unlikely be considered a VA subject to the new VASP licensing regime. However, it is important to consider the nature and functions of the NFTs in practice rather than the marketing terminology used in determining whether the NFT may be subject to regulations;

4. the SFC would conduct consultation on the detailed regulatory requirements of the new VASP regime, and will consider during the consultation whether it is possible to allow non-professional investors to conduct transactions within licensed VA exchanges provided that additional investor protection measures are in place; and

5. the VASP licensing regime will continue to focus on regulating VA exchange operations at this stage. However, Hong Kong will keep in view the development of the VA market, and consider the need for regulating other forms of VA businesses, such as over-the-counter VA trading, P2P VA trading, stand-alone VA payment or custodial systems.

For the paper reporting on the deliberations of the Bills Committee, please see here.