On May 28, the Hong Kong Securities and Futures Commission (SFC) issued a statement on the end of the non-violation period for virtual asset trading platforms, reminding the public that the non-violation period for operating virtual asset trading platforms in Hong Kong under the Anti-Money Laundering Ordinance will end on June 1, a transitional period. All virtual asset trading platforms operating in Hong Kong must be licensed by the SFC or be applicants for virtual asset trading platforms that are "deemed to be licensed."
The SFC pointed out that operating a virtual asset trading platform in Hong Kong in violation of the Anti-Money Laundering Ordinance is a criminal offence, and the SFC will take all appropriate actions against any illegal acts.
In the coming months, while virtual asset trading platform applicants deemed to be licensed continue their applications, the SFC will conduct on-site inspections to determine whether they comply with the SFC’s regulatory requirements, with particular attention paid to their client asset protection and know-your-customer procedures.
All cryptocurrency exchanges that have not applied for a license must quickly transition to a licensed platform, and the deadline for compliance is the end of this month. The CSRC will publish a list of licensed exchanges by June 1, 2024, but there is no guarantee that all applicants will be granted a license.
According to the website of the CSRC, as of now, the CSRC has issued licenses to two virtual asset trading platforms (OSL Exchange and HashKey Exchange), 18 platforms are in the application process, and another 11 license applications have been returned, rejected or withdrawn.
Interpretation of the Anti-Money Laundering Ordinance
To safeguard Hong Kong's financial system and maintain its reputation as an international financial centre, Hong Kong has implemented international standards on combating money laundering and terrorist financing to prevent and detect the inflow and outflow of illegal funds. Hong Kong actively participates in international organisations combating such activities.
Hong Kong has established a high-level "Central Coordinating Committee on Combating Money Laundering and Counter-Terrorist Financing" (hereinafter referred to as "Central Coordinating Committee") to oversee the formulation of policies and implementation of relevant systems to combat money laundering and terrorist financing activities. The Chairman of the Central Coordinating Committee is the Financial Secretary, and its members include representatives from relevant government bureaux and departments, financial regulatory agencies and law enforcement agencies, who work together to implement various tasks to combat money laundering and terrorist financing activities.
According to the Anti-Money Laundering Ordinance, anyone who operates a business of providing virtual asset services in Hong Kong (i.e. operating a virtual asset exchange) or holds himself out as operating such a business must apply for a license from the SFC. Virtual asset trading platforms that have been operating a business of providing virtual asset services in Hong Kong before June 1, 2023 (existing virtual asset trading platforms) can continue to provide such services in Hong Kong from June 1, 2024 without violating the licensing requirements, provided that they meet the conditions for being deemed to be a licensed applicant under the Anti-Money Laundering Ordinance.
Existing virtual asset trading platforms must meet certain deemed licensing conditions and confirm that they can fully comply with the SFC’s regulatory requirements before they are eligible to participate in the deemed licensing arrangements.
Investors should note that applicants for virtual asset trading platforms deemed to be licensed have not obtained a SFC license and may not be issued a formal license in the end because the SFC may return or reject their applications. In such cases, the relevant virtual asset trading platform will have to end its business in Hong Kong, and the SFC may include its name in the "List of Closed Virtual Asset Trading Platforms". Therefore, investors should also check the list from time to time.
OKX and other exchanges withdraw their license applications in Hong Kong
The Hong Kong Securities and Futures Commission stopped accepting license applications from cryptocurrency exchanges at the end of February this year. Any exchange that fails to submit a license application before this date must close its business in Hong Kong by May 31, 2024. So far, seven trading platforms have withdrawn their license applications, including OKX and Huobi, which are among the top ten in the world.
According to the official announcement recently released by OKX, from May 31, 2024, OKX will stop providing centralized virtual asset trading services to Hong Kong users in accordance with regulatory requirements. The relevant arrangement does not affect the withdrawal service, and users do not need to worry about the safety of their funds. After May 31, Hong Kong users can only withdraw money from their OKX accounts. OKX announced the withdrawal of its license application in Hong Kong, stating that it was a decision made after careful consideration of the business development prospects.
In addition, Huobi HK also encountered two withdrawal applications. According to the updated data on the official website of the Hong Kong Securities Regulatory Commission, Huobi HK's application for a virtual asset trading platform license submitted to the Hong Kong Securities Regulatory Commission was withdrawn on May 14, which was the second time it was withdrawn. Huobi HK first submitted an application for a virtual asset trading platform license to the Hong Kong Securities Regulatory Commission on February 20, 2024, but it was withdrawn on February 23, 2024.
Hong Kong's Secretary for Financial Services and the Treasury Paul Chan said earlier that with the application deadline expiring at the end of February, virtual asset regulation has entered a new stage and is currently in a transition period.
The Hong Kong government is communicating with the Securities and Futures Commission to process virtual asset platform applications as soon as possible
According to the latest report, the Hong Kong government will maintain close communication with the SFC to allow the SFC to process all platform applications as soon as possible, so that citizens and investors will have more secure investment options. Looking ahead, Hong Kong will further improve the regulatory framework, including regulating virtual asset over-the-counter service providers, to build a stable ecosystem for the virtual asset industry and promote its responsible and sustainable development.
The Hong Kong Securities and Futures Commission emphasized yesterday that although those virtual asset trading platforms that are deemed to have been licensed have promised to strengthen their policies, procedures, systems and control measures to comply with the regulatory requirements of the Securities and Futures Commission, they still need to demonstrate the actual implementation and effectiveness of these measures to be satisfied by the Hong Kong Securities and Futures Commission. Before these platforms are officially licensed, the Securities and Futures Commission does not expect them to actively promote their services or establish business relationships with new retail customers.
In the future, the Hong Kong crypto market and virtual asset trading may enter a new stage. If the Hong Kong Securities and Futures Commission believes that the applicant can meet the basic licensing and regulatory requirements and has substantial operations in Hong Kong before the licensing system takes effect, then after June 1 this year, these existing platforms will not be temporarily regarded as unlicensed operations, but will continue to provide services to existing customers under supervision.