Hong Kong’s Financial Services Department has issued an ultimatum to unlicensed virtual asset service providers (VASPs), declaring that they must cease operations by May 31, 2024. This measure reflects the government’s commitment to robust regulatory oversight of virtual assets, with a focus on risk-based and prudent supervision.
Existing service providers, which were operational prior to the commencement of the regulatory system, were granted a transitional period to adjust to the new requirements. By February 29, 2024, unlicensed VASPs had the final opportunity to submit license applications if they intended to continue operating within Hong Kong’s jurisdiction.
Christopher Hui, a representative of the financial services department, emphasized the principle of “same activity, same risk, same regulation” in ensuring comprehensive regulation of virtual assets. This approach aims to address risks associated with virtual asset activities, including investor protection and prevention of money laundering and terrorist financing.
The licensing system for Virtual Asset Service Providers (VASPs) and associated regulatory requirements came into effect on June 1 of the previous year. Presently, two licensed VA trading platforms offer Bitcoin (BTC) and Ethereum (ETH) trading services to retail investors, subject to rigorous regulation by the Securities and Futures Commission (SFC) to safeguard investor interests.
VASPs operating before the implementation of the licensing system were provided a transitional period to facilitate their compliance. To continue operations in Hong Kong, these service providers were required to submit license applications by February 29, 2024. The Securities and Futures Commission (SFC) will assess their compliance with regulatory standards and substantial operations in Hong Kong, with non-compliant entities receiving a “No-deeming notice.”
Service providers failing to submit applications by the specified deadline or receiving a notice must cease operations by May 31, 2024, or within three months from the notice’s issuance.
Furthermore, regulatory oversight will extend to over-the-counter (OTC) venues, with a proposed regulatory framework slated for consultation. OTC venues have been implicated in fraud cases involving unlicensed VA trading platforms, prompting regulatory action.
Additionally, the Hong Kong Monetary Authority (HKMA) is soliciting public feedback on a legislative proposal for stablecoin issuer regulation. A “sandbox” arrangement will be introduced by HKMA to gather insights on the proposed regulations.