The next is a visitor publish from Anndy Lian.
Hong Kong has been a significant monetary hub for a few years, and lately, it has proven growing curiosity in blockchain and cryptocurrency applied sciences. The federal government of Hong Kong has indicated its assist for the business’s growth, and lots of initiatives are underway to assist create a good surroundings for crypto and blockchain companies.
Hong Kong has a well-established regulatory framework for monetary providers, which has helped entice many crypto and blockchain firms. The Hong Kong Financial Authority (HKMA) has launched a number of initiatives to assist the event of blockchain and digital currencies. For instance, the HKMA is engaged on creating a central financial institution digital forex (CBDC), and has additionally launched a blockchain-based commerce finance platform.
Many energetic blockchain and cryptocurrency communities in Hong Kong present assist and sources for companies and builders within the business. Many occasions and conferences associated to blockchain and cryptocurrency within the metropolis assist create networking alternatives and promote the business’s development.
In December 2022, the Legislative Council of Hong Kong handed an modification to the Anti-Cash Laundering and Counter-Terrorist Financing Ordinance (AMLO), introducing a licensing regime for digital asset service suppliers (VASPs).
Hong Kong’s New Regulatory Framework
Hong Kong has just lately applied new regulatory frameworks for cryptocurrency buying and selling and providers. The up to date Anti-Cash Laundering Ordinance is consistent with the Monetary Motion Activity Pressure (FATF) Suggestion 15, which requires digital asset service suppliers (VASPs) to stick to anti-money laundering (AML) and countering the financing of terrorism (CFT) laws.
The brand new laws require all VASPs working in Hong Kong to acquire a license from the Securities and Futures Fee (SFC). With no license, people and companies can’t provide VA providers or declare themselves as a supplier.
The Hong Kong authorities carefully regulates all actions associated to the supply of digital asset (VA) providers. The time period “VA providers” encompasses a broad vary of digital providers that embody, however aren’t restricted to:
- (a) Providing digital property on the market or buy usually, leading to a binding transaction; usually introducing or figuring out individuals to different events with the aim of negotiating or concluding digital asset transactions which are binding or with the cheap expectation of doing so;
- (b) Possessing direct or oblique management over consumer cash or consumer digital property within the provision of such providers.
It is very important word that crypto buying and selling platforms that enable buying and selling in monetary merchandise reminiscent of securities and futures contracts aren’t topic to the brand new licensing regime, as they’re already regulated beneath the Securities and Futures Ordinance. One other factor to notice is that the brand new licensing necessities prolong to all crypto exchanges registered in Hong Kong beneath the Corporations Ordinance, together with these primarily based exterior of Hong Kong that actively goal Hong Kong residents of their advertising efforts.
Prohibition on Unlicensed VA Service Suppliers
The amended Ordinance additionally prohibits unlicensed individuals from performing regulated features associated to the enterprise of offering VA providers. Such features could embody the shopping for or promoting of digital property, managing digital asset portfolios, and offering digital asset custodian providers.
Unlicensed people or companies can’t promote VA providers in Hong Kong. The SFC can take enforcement actions in opposition to unlicensed entities, together with issuing fines and revoking licenses.
Impression on VASPs
The brand new laws have important implications for VASPs working in Hong Kong. The licensing course of is rigorous and requires VASPs to show compliance with AML/CFT necessities. Licensed VASPs are topic to ongoing supervision and monitoring by the SFC.
The licensing course of requires VASPs to offer detailed enterprise data, together with possession construction, administration workforce, and threat administration techniques. VASPs should additionally conduct buyer due diligence and transaction monitoring to detect and report suspicious actions.
VASPs that fail to adjust to the regulatory necessities could face extreme penalties, together with fines, license revocation, and reputational harm. The laws purpose to advertise a secure and secure digital asset market in Hong Kong and defend the pursuits of traders and customers.
Advantages of the New Regulatory Framework
The brand new regulatory framework for digital asset providers in Hong Kong has a number of advantages for VASPs and traders. Firstly, the laws present readability and certainty in regards to the authorized and regulatory surroundings for digital asset providers in Hong Kong. This readability will help entice extra traders and companies to the market.
Secondly, the laws promote transparency and accountability within the digital asset market. Licensed VASPs should preserve correct information, conduct common audits, and report suspicious actions to the related authorities. These necessities will help deter fraud and different illicit actions out there.
Thirdly, the laws assist promote a degree taking part in subject for all VASPs working in Hong Kong. The licensing course of ensures that every one VASPs meet the identical excessive requirements and are topic to the identical regulatory necessities. This will help create a extra aggressive and truthful marketplace for digital asset providers in Hong Kong.
get the license?
Crypto companies should acquire a license from the Securities and Futures Fee, the regulatory physique for securities and futures markets. To get a license, the enterprise should cross a ‘match and correct’ check that includes prison background checks, AML/CFT efficiency historical past, monetary standing, academic or different {qualifications}, popularity, expertise, character, reliability and monetary integrity of the particular person. The enterprise should additionally apply for approval of the premises to maintain information or paperwork required beneath the Ordinance. Moreover, every director of the applicant and the final word proprietor should be decided as ‘match and correct’ to be related to offering the VA service.
To fulfill the regulatory necessities of the brand new Ordinance, licensed crypto companies should introduce AML/CTF measures, together with buyer due diligence, transaction monitoring and record-keeping, screening shoppers in opposition to worldwide sanctions and watchlists for PEP standing, and screening shoppers in hostile media. They have to additionally adjust to Journey Rule necessities and appoint an eligible auditor inside one month after turning into a licensed supplier. Moreover, they have to put together monetary statements and different paperwork for prescribed intervals and submit them with the auditor’s report back to the Fee inside 4 months after the tip of the monetary 12 months to which they relate.
The licensed supplier should additionally submit an annual return to the Fee and pay a prescribed payment inside one month after every anniversary of the license’s grant date. Lastly, the licensed particular person should notify the Fee in writing of any change in data that the licensed particular person or final proprietor has offered beneath the necessities of the Ordinance, together with supposed cessation of enterprise or intention to alter the deal with at which it proposes to offer any VA service.
Last phrases
The SFC can have broad powers to oversee AML/CTF and regulatory compliance by licensed VASPs, together with imposing sanctions. Companies that function and not using a license or violate AML guidelines can face important fines and imprisonment for senior administration. Within the case of fraudulent actions or deception involving digital property, fines can attain as much as 10,000,000 HKD (1,277,000 USD) and imprisonment for as much as 10 years.
The brand new laws will come into impact on April 1, 2023. Some provisions, together with licensing necessities, will go into impact on June 1, 2023. Companies are suggested to start out getting ready for the brand new laws as quickly as potential and reviewing their AML/CTF insurance policies and controls to establish potential gaps within the necessities.
Total, implementing these new laws is anticipated to draw extra institutional traders to the Hong Kong cryptocurrency market, as they’ll have better confidence within the security and legitimacy of the business. The transfer additionally brings Hong Kong’s cryptocurrency laws consistent with international requirements and finest practices.
Hong Kong has skilled important occasions since 2019 which have had a significant influence on the town and its individuals. Hong Kong has confronted many challenges, from protests and political unrest to the COVID-19 pandemic to the introduction of nationwide safety regulation and political modifications. I hope the town’s new crypto agenda pushes a important step ahead. By embracing the alternatives of latest applied sciences, defending traders, and selling transparency, Hong Kong can proceed to be a frontrunner within the international monetary business.
Some “#AnndyLian Meals for Thought” earlier than I finish this text:
The Japanese authorities acknowledged early on that permitting retail traders to take part within the cryptocurrency market might assist drive adoption and promote innovation. My query is: “Will Hong Kong comply with Japan’s method to permitting retail traders to commerce cryptocurrencies in a regulated surroundings?”
This may very well be one in every of their promoting factors. I’m keen to seek out out.