Hong Kong SFCWarning to unlicensed virtual asset trading platforms

On 7 August 2023, the Securities and Futures Commission issued a public statement warning unlicensed virtual asset trading platforms (VATPs) of the legal and regulatory consequences of improper practices, and remind investors to be wary of the risks of trading on unregulated VATPs.

The improper practices observed by the SFC are:

Falsely claiming to have submitted an application to the SFC

Some unlicensed VATPs claim to have submitted licence applications when in fact they have not done so. The SFC will take into account any misrepresentation made by an unlicensed VATP when considering the application, should it submit an application.

The SFC further reminded that under section 53ZRG of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO), a person commits an offence if the person makes any fraudulent misrepresentation or reckless misrepresentation for the purpose of inducing another person to enter into, or offer to enter into, an agreement to acquire, dispose of, subscribe for or underwrite any virtual assets. A person who commits this offence is liable: (i) on conviction on indictment to a fine of HK$1,000,000 and to imprisonment for seven years; or (ii) on summary conviction to a fine at level 6 and to imprisonment for six months.

VATPs do not comply with the SFC’s requirements

Upon commencement of the new regime, all centralized virtual assets trading platforms doing business in Hong Kong will need to be licensed and regulated by the SFC. A 12-month non-contravention period will be granted to existing VATPs operating in Hong Kong. Pre-existing VATPs (as of 1 June 2023) would need to submit their licence application by 29 February 2024 or cease operations by 31 May 2024.

The SFC observed that some unlicensed VATPs set up new entities to provide virtual asset services in Hong Kong, and their services and products offered may not be in compliance with the legal and regulatory requirements under the new regime. The SFC further noted that some unlicensed VATPs launched new services and products under their existing entities that may not comply with the applicable legal and regulatory requirements.

The SFC reminded operators that it may decide that the transitional arrangements may not be applicable to certain VATPs if the SFC does not see a reasonable prospect for the VATPs to successfully show that they are capable of complying with the applicable legal and regulatory requirement.

How we can help

In today’s increasingly complex regulatory landscape, it is essential to keep abreast with the latest regulatory changes.

Our team specializes in advising clients on issues related to licensing and regulatory compliance. To learn more about our services and how we can assist in assessing the readiness of your application or guide you through the application process, please contact us.

Alfred Leung, Partner