Hong Kong Treasury Bureau Hui Ching-yu: A new stage of virtual asset supervision

Hong Kong’s virtual asset regulatory environment has become increasingly stable and complete. With the implementation of various systems in 2023, more and more institutions' businesses are on track, giving the market more and more confidence.

On February 2, 2024, the public account of the Hong Kong Treasury Bureau published the latest announcement "A New Phase of Virtual Asset Supervision" written by Director Hui Ching-yu, the article summarizes the recent development of Hong Kong’s virtual asset VASP licensing system and stable currency licensing system, and highlights:The government believes that it is necessary to bring over-the-counter exchanges (OTC) into supervision, and will do so in the short term. A consultation on the proposed regulatory framework has been launched, and citizens and stakeholders are expected to express their opinions.

The following is the full text.

Since we issued the "Policy Declaration on the Development of Virtual Assets in Hong Kong" in October 2022, the virtual asset market has continued to develop. While products are being introduced, the prices of individual cryptocurrencies have fluctuated significantly, and international organizations and local regulatory agencies have also made it clear that they will strengthen supervision of virtual assets. All these make people think that virtual assets have entered a "cold winter", and some people have asked whether the government's policy on virtual assets has changed after the JPEX incident.

Our response is clear: Hong Kong’s policy for virtual assets is to focus on risk-based and sound supervision. By adhering to the principle of "same activities, same risks" ", Same Supervision" principle and implement comprehensive regulation to deal with the risks of virtual asset activities in investor protection, money laundering and terrorist financing. We firmly believe that financial innovation can be effectively encouraged by providing a robust and transparent regulatory environment.

Based on these principles, we established a virtual asset service provider (VASP) licensing system and regulatory requirements, which were implemented on June 1 last year. Now Two licensed virtual asset trading platforms have upgraded their licenses to provide Bitcoin (BTC) and Ethereum (ETH) trading services to retail investors. Licensed platforms are regulated by the Securities and Futures Commission, giving investors considerable protection. Considering that some virtual asset service providers were already operating in Hong Kong before the licensing system came into effect, the licensing system has a transition period to allow these original service providers to transition to the new system. If these service providers plan to continue operating in Hong Kong, they must submit license applications on or before February 29 this year. After considering factors such as whether the applicant meets the regulatory requirements and whether it has substantive operations in Hong Kong before the licensing system takes effect, the SFC will decide whether to transfer these original licenses from June 1 this year. The service provider is deemed to be licensed until the SFC makes a final decision on its license application.

On the contrary, if the SFC considers that some original service providers fail to meet the relevant requirements of the transitional arrangement, they will issue "inappropriate service providers" to these applicants. Notification of the issuance of a license". All original service providers who have not submitted an application on or before February 29, or who have received a "notice that they are not deemed to be licensed" must proceed to wind down their business on or before May 31 this year, or Completely terminate the business within three months from the issuance of the notice from the Securities Regulatory Commission.

As the deadline for original service providers to submit license applications to comply with the transitional arrangements will expire at the end of this month, the SFC is now actively preparing for enforcement (including applying to non-standard service providers) Qualified service providers will issue a "notice that they are not deemed to be licensed"), and will strengthen publicity efforts and update the list of virtual asset trading platforms to the public as soon as possible to ensure that the public clearly knows whether the relevant service providers have been licensed. I would also like to remind investors again and again that many virtual assets themselves have no actual value and their prices are very volatile. You must understand the details in detail and consider the risks involved before participating in related investments. If you want to trade virtual assets, you should only do so through a platform that has been officially licensed by the Securities and Futures Commission. The operations of other unlicensed or unlicensed platforms may not meet statutory regulatory requirements. Some unlicensed platforms have even been involved in fraud, causing investors to suffer losses.

On the other hand, the virtual asset ecosystem also includes some over-the-counter exchanges (commonly known as OTC (Over-the-counter)), most of which are physical stores. Or operate as an online platform, which can easily reach the general public. In fact, some fraud cases involving unlicensed virtual asset trading platforms last year also involved over-the-counter exchanges, misleading investors into transferring funds to these unlicensed platforms. Therefore, we believe that it is necessary to bring OTC exchanges under supervision and will launch a consultation on the proposed regulatory framework in the short term. We hope that citizens and stakeholders will actively express their opinions.

Friends who pay attention to the development of virtual assets know that we are also working with the Hong Kong Monetary Authority (HKMA) on the regulatory system for stablecoin issuers. Consultation on legislative proposals. The proposed regulatory regime requires all eligible fiat stablecoin issuers to obtain a license from the HKMA. The system supervises fiat stablecoin issuers through a risk-based approach, providing transparent and appropriate restrictions to manage potential currency and financial stability risks. The HKMA will also launch a "sandbox" arrangement to communicate regulatory expectations and provide compliance guidance to issuers who intend and have specific plans to issue fiat currency stablecoins in Hong Kong, while collecting their opinions on the proposed regulatory requirements to facilitate subsequent supervision. implementation of the system and ensuring that the system meets regulatory objectives. The two-month consultation will end at the end of this month, so please take the time to submit your comments.

As the transition period of the virtual asset service provider licensing system enters the final stage, we have also gradually improved the regulatory measures related to virtual assets and strengthened the International standards in supervision and market development are becoming clearer and clearer. Investors buying and selling virtual assets on licensed trading platforms will receive greater protection and confidence in the market. We will continue to promote the sound and responsible development of the Hong Kong market through a multi-pronged approach such as comprehensive public education, strengthening law enforcement actions, and timely dissemination of information.

February 2, 2024