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Hong Kong VASP licensing regime starts March 1, 2023 and will be more rigorous than Singapore, the UK and Japan

Herbert Smith Freehills | Hannah Cassidy | Jun 27, 2022

VASP - Hong Kong VASP licensing regime starts March 1, 2023 and will be more rigorous than Singapore, the UK and JapanThe government acknowledges that the VASP licensing regime will be more rigorous and comprehensive than those in Singapore, the UK and Japan.

The Hong Kong government has gazetted amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) to enhance Hong Kong’s anti-money laundering and counter-terrorist financing (AML/CFT) regulatory regime. The amendments will be introduced into the Legislative Council (LegCo) for first reading on 6 July 2022.  LegCo brief sets out an overview of the amendments, which follows the consultation conclusions published by the Financial Services and the Treasury Bureau in May 2021 on the proposed changes (see our 2021 briefing).

VASP licensing regime

  • A new licensing regime for virtual asset service providers (VASPs) to be administered by the Securities and Futures Commission (SFC).
  • It is proposed that the AMLO amendments relating to the VASP licensing regime will come into effect on 1 March 2023.
  • Once in force, any person who seeks to carry on a business of providing a virtual asset service (currently limited to operating a virtual asset exchange (VA exchange)) will be required to apply to the SFC for a licence.

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Operating a VA exchange entails providing services through means of electronic facilities where:

  • offers to sell or purchase virtual assets are regularly made or accepted in a way that forms or results in a binding transaction; or
  • persons are regularly introduced, or identified to other persons in order that they may negotiate or conclude, or with the reasonable expectation that they will negotiate or conclude sales or purchases of virtual assets in a way that forms or results in a binding transaction; and
  • client money or client virtual assets comes into direct or indirect possession of the person providing such service.

Virtual assets in scope

The broad definition of “virtual asset” (see below) will capture Bitcoin and “altcoins” as expected. Stablecoins and certain governance tokens will also be in scope. While NFTs are not usually recognised as a medium of exchange accepted by the public, it is possible that they may be brought in scope in the future as the Secretary for Financial Services and the Treasury will be empowered to prescribe by notice published in the Gazette whether a particular asset is to be considered a virtual asset under the AMLO.

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Virtual asset” will be defined under the AMLO as a cryptographically secured digital representation of value that:

  • is expressed as a unit of account or a store of economic value; and
  • either:
    • is used (or is intended to be used) as a medium of exchange accepted by the public, for any one or more of the following purposes – (a) payment for goods or services, (b) discharge of a debt, or (c) investment; or
    • provides rights, eligibility or access to vote on the management, administration or governance of the affairs in connection with, or to vote on any change of the terms of any arrangement applicable to, any cryptographically secured digital representation of value; and
  • can be transferred, stored or traded electronically; and
  • satisfies other characteristics prescribed by the SFC by notice published in the Gazette;

Or alternatively:

  • is a digital representation of value prescribed as a virtual asset by the Secretary for Financial Services and the Treasury by notice published in the Gazette.

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NCFA Jan 2018 resize - Hong Kong VASP licensing regime starts March 1, 2023 and will be more rigorous than Singapore, the UK and JapanThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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