The Securities and Futures Commission statement on the End of Non-Contravention Period for Virtual Asset Trading Platforms

Background

The SFC introduced a new licensing regime under the AMLO, effective from 1 June 2023. This regime mandates that all VATPs operating in Hong Kong must either obtain a license or be deemed-to-be-licensed during a non-contravention period under the transitional arrangements. The non-contravention period was established to provide pre-existing VATPs sufficient time to align their operations with the new regulatory standards without breaching the law. During this period, pre-existing VATPs could continue their activities while working towards full compliance with the SFC’s licensing requirements. The transitional arrangements aimed to balance the need for stringent regulatory oversight with the practicalities of transitioning existing market players to the new framework. Please see our news update on the circular on transitional arrangements of the new licensing regime for VATPs by the SFC on 31 May 2023 here.

Reminder for Investors

As the non-contravention period will come to an end on 1 June 2024, the SFC urges investors to conduct virtual asset transactions exclusively on the SFC-licensed VATPs only. Investors should verify the licensing status of VATPs via the “List of licensed virtual asset trading platforms” on the SFC’s website. It is crucial to note that deemed-to-be-licensed VATP applicants are not licensed by the SFC and may not eventually be granted formal licenses. If an application is returned or refused, the VATPs concerned will be required to close down their businesses in Hong Kong. The public can check the “List of applicants whose licence applications have been returned, refused or withdrawn” and the “List of closing-down virtual asset trading platforms” for updated information.

Reminder for Deemed-to-be-Licensed VATP Applicants

Deemed-to-be-licensed VATP applicants and their ultimate owners must fully meet the SFC’s regulatory requirements and licensing conditions. The SFC advises these applicants not to actively market their services or onboard new retail clients until they have demonstrated effective implementation of their policies, procedures, systems, and controls, which should be assessed by sufficiently qualified external assessor(s), to the SFC’s satisfaction and have been formally licensed. All VATPs and their ultimate owners must also adhere to relevant laws and regulations, including preventing Mainland Chinese residents from using their virtual asset services.

Deemed-to-be-licensed VATP applicants are subject to SFC’s supervisory, disciplinary, intervention and other applicable powers. In the coming months, the SFC will conduct on-site inspections of deemed-to-be-licensed VATP applicants to ascertain their compliance, with a focus on client assets safeguarding measures and know-your-client processes. Any non-compliance observed will result in swift refusal of their license applications and other regulatory actions as necessary.

Analysis and Takeaways

The SFC reminds the public that the non-contravention period for VATPs will end on 1 June 2024 and investors shall use only the SFC-licensed platforms. Investors should verify the licensing status of VATPs via the SFC’s website to avoid the risks associated with deemed-to-be-licensed applicants, who may not secure formal licenses and could be forced to close down their businesses. The SFC also stresses strict compliance with the regulatory requirements and licensing conditions for deemed-to-be-licensed VATP applicants.

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.