Introduction

On 20 February 2023, the Securities and Futures Commission (the “SFC”) issued a consultation paper on proposed regulatory requirements for virtual asset trading platform operators licensed by the SFC (the “Consultation Paper”). The Consultation Paper is a follow-up consultation of the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022 (the “Bill”) which was gazetted in June 2022 and passed in December on the same year, introducing a new licensing regime for virtual asset service providers (the “AMLO VASP regime”) (see our news update on the Bill). The Consultation Paper further explains and sets out the proposed changes in regulatory requirements and proposed transitional arrangements under the regime for centralised virtual asset trading platforms (the “VA Trading Platforms”) trading non-security tokens coming into effect on 1 June 2023. Industry and public proposals are invited on the applicable regulatory approach. The public comment period ends on 31 March 2023.

Key Regulatory requirements

A. Key proposed regulatory requirements for licensed VA Trading Platforms

Upon the commencement of the AMLO VASP regime, it is proposed that VA Trading Platforms licensed by the SFC shall comply with the Guidelines for Virtual Asset Trading Platform Operators (“VATP Guidelines”). Such VATP Guidelines will be based on the existing regulatory requirements applicable to SFO-licensed platform operators (“LPOs”), and particularly, the Terms and Conditions for VA Trading Platform Operators (VATP Terms and Conditions).

The proposed regulatory requirements under VATP Guidelines cover various aspects and areas, such as fit and proper requirement, compliance with the general principles, financial soundness, operations, prevention of market manipulative and abusive activities, dealing with clients, custody of client assets, management, supervision and internal control, cybersecurity, conflict of interests, record keeping, auditors, ongoing report obligations.¹ The SFC also emphasise the “same business, same risks, same rules” approach, which requires VA providers of the same risk level to be subjected to the same obligations but adapted to address the specific risks of virtual assets (“VA(s)”), aiming to provide investors with more protection under the backdrop of the collapse of the Luna token and Terra stablecoin.² After the AMLO VASP regime comes into effect, the VATP Terms and Conditions will be superseded. All platform operators, whether licensed under the SFO and/or the Anti-money Laundering Ordinance (“AMLO”), will be subject to the VATP Guidelines.

B. Dual Licences

Upon the commencement of the AMLO VASP regime, the SFC will regulate the trading of security tokens by VA Trading Platforms under the existing SFO regime and regulate the trading of non-security tokens by VA Trading Platforms under the AMLO VASP regime.

Given that a VA may evolve from a non-security token to a security token (or vice versa), VA Trading Platforms (together with their proposed responsible officers and licensed representatives) should apply for approvals under both the existing SFO regime and the AMLO VASP regime and become dually licensed and approved.

C. Proposal to allow retail access to licensed VA Trading Platforms³

When the existing SFO regime was introduced in 2018, it was more prudent to restrict SFO-licensed VA Trading Platforms to serve professional investors only. In this regard, the SFC notes the public’s diverse views on whether retail investors should be allowed access to the services of licensed VA Trading Platforms.

In January 2022, the SFC allowed for the first-time retail investors to access a limited suite of regulated virtual asset-related derivative products traded on conventional exchanges. Later in October 2022, the SFC put in place a regime for authorising virtual asset futures exchange-traded funds. Retail investors, thus, since then have indirect access to Vas through regulated products in Hong Kong (see our news update for details).

Since more global financial institutions and service providers have entered the market, the SFC proposes to allow all types of investors, including retail investors, to access trading services of “Eligible large-cap VAs” offered by LPOs, provided that the VAs are included in at least two “acceptable indices” issued by at least two independent index providers. LPOs should also take into account other general token admission criteria including the market capitalization, trading volume, security of protocols, and internal compliance of the VAs before admitting them for trading.⁴

D. Consultations Questions⁵

Some of the key questions set out by the SFC for industry and public feedback, together with their corresponding views, are extracted as follows:

Key measures of the transitional arrangements and implementation details for the AMLO VASP regime

E. Eligibility for the transitional arrangements

To be eligible for the transitional arrangements, a VA Trading Platform must be pre-existing, i.e., in operation in Hong Kong prior to 1 June 2023 and with meaningful and substantial presence. To determine the same, the SFC will take to account the following non-exhaustive factors including (a) whether it is incorporated in Hong Kong; (b) whether it has a physical office in Hong Kong; and (c) whether its Hong Kong staffs have central management and control over the VA Trading Platform.¹⁰

F. Key dates and implementation details of the transitional arrangements

For pre-existing VA Trading Platform which intends to apply for a licence, it must submit a fully completed licence applicable online under the AMLO VASP regime between 1 June 2023 and 29 February 2024. It will be asked to confirm and demonstrate that it has been operating a VA Trading Platform in Hong Kong immediately before 1 June 2023 and it will comply with the applicable regulatory requirements.

For pre-existing VA Trading Platform that does not intend to apply for a licence, it should start preparing to close down its business in Hong Kong in an orderly manner. While the strict deadline for these platforms to close down is 31 May 2024, the SFC expects them to cease any active marketing of their services in Hong Kong.

By 1 June 2024, all VA Trading Platforms in Hong Kong must have been either deemed to be licensed or granted a licence by the SFC. The SFC will take immediate action against any unlicensed VA Trading Platforms.

Analysis and takeaways

Subsequent to the Government’s Policy Statement on its plan and approach for the VASP regime (see our news update), this Consultation Paper is a timely attempt to translate visions into practices and denotes a significant milestone in the global regulatory regime over VAs. SFC is committed to taking the forefront role in expanding the retail market for VAs in Hong Kong by implementing legal safeguards for different stakeholders. It helps retail investors acclimate to the volatile market and enables retail investors’ access to regulated trading platform under a protective and effective system. This Consultation Paper, together with the previously unveiled regulations, foster a new wave of market opportunities and capital investments while modernising Hong Kong’s financial market, which aligns with the global trajectory of further utilising VAs.

As such, we welcome the SFC’s proposals and would be happy our perspectives on the Consultation Paper for facilitating local VA services. We would also like to take the opportunity to encourage you to have discussion with us and share your views on this topic.

Please contact our Partner Mr. Rodney Teoh for any enquiries or further information.

This news update is for information purposes only. Its content does not constitute legal advice and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.

¹ Please see p.10-11 of the Consultation Paper for the full list and corresponding explanation of the existing regulatory requirements.
² P.7 of the Consultation Paper.
³ P.12 of the Consultation Paper.
⁴ P.16 of the Consultation Paper.
⁵ P.12-23 of the Consultation Paper.
⁶ Please see p.15 of the Consultation Paper for the full list of general non-exhaustive token admission criteria suggested by the SFC.
⁷ Please see p.16 of the Consultation Paper for the specific token admission criteria, particularly on requirements for an “acceptable index”.
⁸ Please see p.17 of the Consultation Paper for the specific areas of due diligence required.
⁹ Please see p.17-18 of the Consultation Paper for the non-exhaustive list of disclosure obligations.
¹⁰ Please see p.24 of the Consultation Paper for full list of non-exhaustive factors in determining whether the firm has a meaningful and substantial presence.

Asian Legal Business (ALB) recently published the “ALB Top 15 North Asia Litigators 2023“. Our Partner, Head of Litigation and Dispute Resolution Department, Ms. Heidi Chui, has been named one of the “ALB Top 15 North Asia Litigators 2023” for her outstanding professional performance and reputation amongst clients and peers.

ALB spotlights the most prominent litigators in Hong Kong, Japan, and Korea and assess candidates by their major cases and achievements in the past 12 months, innovative strategies, client recommendations, and lawyers’ feedback to select the top 15 lawyers who have a strong influence in the Litigation practice.

	Heidi Chui | Partner Head of Banking and Finance and Litigation and Dispute Resolution
“It is an honour to be recognised by ALB as one of the “Top 15 North Asia Litigators 2023”. Thank you, ALB, for the recommendation and our team members for their dedication, especially the long-term trust and support of our clients. I look forward to having closer collaborations with our clients and providing them with innovative and pragmatic solutions.”

For any inquiries, please contact our Partners, Heidi Chui, or visit “ALB Top 15 North Asia Litigators 2023” here .

Stevenson, Wong & Co. acted as Hong Kong legal advisers to Jiangxi Pharmaceutical Investment Co., Ltd. (the “Offeror”) in relation to (i) the acquisition of 9.0% (the “Acquisition”) of the entire issued share capital of the Charmacy Pharmaceutical Co., Ltd., a joint-stock company established in the PRC listed on The Stock Exchange of Hong Kong Limited (stock code: 2289) (“Charmacy”) with a consideration of HK$70,858,000 and (ii) the unconditional mandatory cash offer (the “Offer”) by the Offeror to acquire all the issued shares of the Company.

The Offeror has completed the Acquisition on 17 January 2023, which thereby became the largest shareholder of Charmacy and triggered its mandatory general offer obligation under the Hong Kong Code on Takeovers and Mergers. The Offeror has then acquired another 10.52% of the entire issued share capital of the Company under the Offer which commenced on 20 January 2023 and closed on 10 February 2023.

The Offeror is a direct wholly-owned subsidiary of the Jiangxi Jiangzhong Pharmaceutical Commercial Operation Co., Ltd. (“Jiangzhong Yishang”), a state-owned enterprise in the PRC. Jiangzhong Yishang is principally engaged in the wholesale and retail of medicines and the sales of foods, disinfection equipment and Class III medical devices.

Charmacy together with its subsidiaries are principally engaged in the pharmaceutical distribution business. It mainly distributes western medicine, Chinese patent medicine and healthcare products to downstream distributors and retail terminals, as well as provides consultation service on pharmaceutical products. Charmacy completed its H share full circulation in June 2022.

Our team was led by our partner Mr. Rodney Teoh, assisted by team members including Associate Mr. Calvin KW Lo, Associate Ms. Angela Lau and Paralegal Ms. Cheyenne Xing.

Please contact our partner Mr. Rodney Teoh for any enquiries or further information.

(中文) 深圳国际仲裁院（SCIA）与华南（香港）国际仲裁院（SCIAHK）于2023年2月8日，在SCIAHK位于香港中环国际金融中心之辧事处联合举办了“深港国际仲裁春茗会”，吸引了逾50名香港法律界、工商界之领袖及代表参加。本所合伙人﹑诉讼及争议解决部主管徐凯怡律师，与上海市律师协会副会长及锦天城律师事务所高级合伙人朱林海律师亦一同出席了本次活动。

由左起: SCIA理事及SCIAHK董事局执行主席王桂埙﹑本所合伙人徐凯怡律师，和上海市律师协会副会长及锦天城律师事务所高级合伙人朱林海律师

本次活动由SCIA理事及SCIAHK董事局执行主席王桂埙担任主持人，并由SCIA副理事长及SCIAHK董事局主席梁定邦﹑SCIA院长及SCIAHK董事局执行主席刘晓春，和香港国际仲裁中心名誉主席及香港仲裁员代表杨良宜作为嘉宾发言，介绍了SCIA+SCIAHK“双城两院”的创新发展、以充分发挥“跨境双平台”优势，共同推动“深圳+香港”成为更具全球影响力的国际仲裁中心。

SCIA理事及SCIAHK董事局执行主席王桂埙 (左) 和SCIA副理事长及SCIAHK董事局主席梁定邦 (右)

SCIA院长及SCIAHK董事局执行主席刘晓春(左) 和香港国际仲裁中心名誉主席及香港仲裁员代表杨良宜(右)

SCIA理事及香港特别行政区首任律政司司长梁爱诗博士 (中)

香港国际仲裁中心名誉主席及香港仲裁员代表杨良宜 (右二)

立法会议员简慧敏律师 (中)

全国港澳研究会理事顾敏康 (右一)

如阁下有任何查询或想了解更多详情，请联络本所合伙人徐凯怡律师。

Our Partner, Rodney Teoh, has contributed two chapters on Hong Kong’s Capital Markets, Debt and Equity, to the Asian Legal Business (ALB)’s recent publication titled “ALB Legal Guide to the Greater Bay Area (GBA) 2023” (the “ALB GBA Guide”).

In the debt capital market chapter, “Overview and Recent Developments of Hong Kong Debt Capital Market”, Rodney provided a deep analysis of offshore bond issuance transaction features and structures. He also discussed about the requirements to list offshore bonds in Hong Kong, and introduced different types of offshore bonds, such as Dim Sun bonds, Green Bonds, Macau’s “Lotus” Bonds and Free Trade Zone Offshore bonds.

In the equity market chapter, “Hong Kong Offshore New Listing Opportunities for GBA Enterprises”, Rodney briefly introduced the standard main listing requirements on the HKEX (Main Board and GEM) and the US NASDAQ Capital Market. He followed by an in-depth discussion on HKEX’s significant listing reforms targeting the biotech industry, SPACs and dual/ secondary listing regimes, as well as the new specialist technology companies listing regime proposed by HKEX in October 2022. He also explained the need of pre-IPO reorganisation and due diligence and its importance in ensuring a successful HK IPO and listing.

Our Associates Angela Lau and Calvin Lo also contributed to the chapters.

About “ALB Legal Guide to the Greater Bay Area (GBA) 2023”

ALB is a leading legal publication under Thomson Reuters. By inviting leading lawyers as contributors, the ALB GBA Guide aims to summarise the latest developments in the key market areas of the Greater Bay Area and provide guidance for companies on the complex issues arising from applying laws in different jurisdictions in the GBA.

Please click here to obtain a soft copy of the ALB GBA Guide.

For more information, please contact our Partner Rodney Teoh.

Stevenson, Wong & Co. acted as Hong Kong legal advisers to the Neo-Concept Group in relation to the issuance of non-convertible redeemable preference shares for a total consideration of US$15,000,000 to VIAM, including its affiliates.

The Neo-Concept Group is founded and led by Ms. Eva Siu. It is a leading Hong Kong headquartered sustainable fashion designer and manufacturer for international brands and retailers. They have achieved multiple industry sustainability certifications such as Global Recycle Standard, Organic Content Standard, Responsible Wool Standard, OEKO-TEX and the HIGG Index.

The VIAM Group was established in 2016 as an independent asset management platform. Currently, VIAM has AUM of approximately $11.3 billion (as of 31 December 2021) with offices in Hong Kong, Singapore, Seoul, Shanghai and Shenzhen.

Our team was led by our Partner Mr. Rodney Teoh, supported by team members including Associate Ms. Angela Lau and Trainee Solicitor Ms. Jess Chung.

Please contact our Partner Mr. Rodney Teoh for any enquiries or further information.