Foreword: The Securities and Futures Commission (SFC) of Hong Kong has observed that some unlicensed virtual asset trading platforms have used improper business practices. This statement warns virtual asset trading platforms of the potential legal and regulatory consequences of these improper practices, and reminds investors to beware of the risks of buying and selling virtual assets on unregulated virtual asset trading platforms.
The SFC also reminds unlicensed virtual asset trading platforms that, in addition to setting up new companies for transitional arrangements, any other existing companies that are operating businesses providing virtual asset services in Hong Kong will also be subject to the new virtual asset service provider regime (Note 2). These existing companies will also be required to apply for a SFC license or should proceed to wind down their Hong Kong businesses. Conducting unlicensed activities in Hong Kong is a criminal offence.
The transitional arrangements under the new regime for regulating virtual asset service providers aim to give virtual asset trading platforms that have provided virtual asset services in Hong Kong before June 1, 2023 a reasonable and sufficient time to prepare to comply with the applicable Legal and regulatory requirements for licensed virtual asset trading platforms (Note 2). Virtual asset trading platforms should note that even if they believe they are eligible to be deemed to be licensed under the transitional arrangement, the SFC may decide to proceed if it considers that they have no reasonable chance of successfully demonstrating their ability to comply with applicable legal and regulatory requirements. The arrangements for being licensed do not apply to them (Note 3).
The SFC is concerned that, in anticipation of transitional arrangements, some unlicensed virtual asset trading platforms have set up new companies to provide virtual asset services in Hong Kong. They have also publicly announced their intention to apply for licenses for these new companies. However, the services and products provided by some of these new companies may not comply with the legal and regulatory requirements under the new regime.
The SFC is concerned that, in anticipation of transitional arrangements, some unlicensed virtual asset trading platforms have set up new companies to provide virtual asset services in Hong Kong. They have also publicly announced their intention to apply for licenses for these new companies. However, the services and products provided by some of these new companies may not comply with the legal and regulatory requirements under the new regime.
In addition, the SFC has noted that some unlicensed virtual asset trading platforms continue to launch new services and products through their existing companies that may not comply with applicable legal and regulatory requirements.
For example, they may launch certain virtual assets for retail customers to buy and sell, virtual asset derivatives trading services, or virtual asset "deposits", "savings" or "income" and other arrangements involving virtual assets through new or existing companies, which are not permitted under the new system.
These non-compliant activities may raise concerns about, among other things, their willingness to comply with the SFC’s regulations and whether they are fit and proper persons to be licensed.
Virtual asset trading platforms should note that if there have been some non-compliant activities in the past, the SFC will consider whether these activities could have been reasonably avoided when considering their license applications. In particular, if there have been some non-compliant behaviors in the past that have led to the need to cancel customer transactions or withdraw virtual assets that have been available for retail customers to buy and sell, and such cancellations or withdrawals could have been reasonably avoided based on the legal and regulatory requirements expected to be in place under the new system, the SFC may not approve of such behaviors. In addition, when evaluating the license applications of virtual asset trading platforms, the SFC will also consider whether they can demonstrate a sincere intention to correct non-compliant activities, including phasing out impermissible transactions in an orderly manner.
A Warning to Investors
The SFC would like to warn investors that some unlicensed virtual asset trading platforms are misleading the public by falsely claiming that they have submitted license applications to the SFC. Other unlicensed virtual asset trading platforms may have publicly announced their intention to apply for a license from the SFC. Investors should note that these unlicensed trading platforms may or may not eventually submit license applications.
Most virtual asset trading platforms currently accessible to the public are unregulated. When the Commission approves a virtual asset trading platform to provide services to retail investors, it will update the list of virtual asset trading platforms published on its website.
The SFC once again warns investors to beware of the risks of buying and selling virtual assets on unregulated virtual asset trading platforms. If a virtual asset trading platform ceases operations, closes down, is hacked, or any assets are misappropriated, investors may face the risk of losing all investments held on the platform. If you have any questions about the licensing status of any virtual asset trading platform, please refer to the Hong Kong SFC's list of virtual asset trading platforms. #BTC