Hong Kong's Securities and Futures Commission (the SFC) has released a bumper 380 page response to its consultation on Proposed Regulatory Requirements for Virtual Asset Trading Platform Operators and Guidelines for Virtual Asset Trading Platform Operators which will become effective on 1 June 2023.
The SFC received 152 written submissions during the consultation period and made modifications and clarifications to its proposed guidelines based on the feedback received. According to the SFC, the majority of respondents agreed to the proposal of allowing licensed trading platform operators to serve retail investors. The SFC plans to implement measures to protect these investors, including suitability checks, good governance, enhanced due diligence, admission criteria, and disclosures.
The Guidelines for Virtual Asset Trading Platform Operators will become effective on 1 June 2023. The guidelines outline various requirements for licensed trading platforms, such as safe custody of assets, segregation of client assets, avoidance of conflicts of interest, and cybersecurity standards. The SFC has said that it will provide additional guidance on the new regulatory requirements, license application procedures, and transitional arrangements in the near future.
Virtual asset trading platform operators willing to comply with the SFC's standards are encouraged to apply for a license. Those who do not plan to apply are expected to proceed with an orderly closure of their business in Hong Kong.
The SFC will work with the Investor and Financial Education Council to educate investors and consumers about the risks of trading on unregulated platforms. It is important to note that as of now, no virtual asset trading platform has been approved to provide services to retail investors, and most publicly accessible platforms are not regulated by the SFC in Hong Kong.
The publication of the Guidelines is the final regulatory step before the introduction of Hong Kong's much hyped licensing regime for virtual asset trading platforms. The work of preparing and processing licensing applications now begins with a transitional period to take place over the next 12 months. While Hong Kong has reportedly flung open its doors to the crypto industry, the detailed guidance suggests that Hong Kong will adopt high standards and rigour in opening a licensed framework for virtual asset trading in the city.