Taking into account the growing number of investors who would like to get a license for cryptocurrency activities in Hong Kong, local regulators publish numerous recommendations informing investors on the distribution and marketing of crypto products. This initiative is expected to make an investment in HK more comprehensive and easier.
Therefore, HK’s main financial regulator, the SFC, issued a series of circulars describing the standards for regulation of VAPMs. One of the circulars’ aspect is the outline for regulating operators of platforms trading and exchanging virtual assets.
What is new
The cryptocurrency regulation regime in Hong Kong used to be rather limited since it was only based on SFC-issued circulars. Additionally, there was an open question of whether cryptoassets can be viewed as securities and if the SFO should be governing them.
The 1st circular states that the distribution of funds that have been invested in cryptoassets is deemed a regulated activity. Managing cryptocurrency funds falls under this category, as well. Resultingly, the obtainment of a cryptocurrency exchange license is mandatory for all distributors and managers of such funds, no matter if they are based in HK or not.
As for the 2nd circular, the SFC becomes an authority to regulate cryptoassets that fall under the definition of futures contracts and securities provided by the SFO. When it comes to HK-licensed companies that plan to provide cryptoasset management services, they are expected to inform the SFC about their intentions.
While planning on registering a crypto company in Hong Kong, it is worth remembering that such activities require permission from the SFC. Otherwise, providing these services without permission is considered a crime and is subject to legal punishment.
Another detail to mention is the fact that only futures contracts and securities are regulated by the SFC. It means if the cryptoasset does not belong to these categories, the SFC’s regulation does not extend to it.
Requirements
With the intention to make sure that the rights of investors into cryptoassets that are not considered securities, regulators made a decision to introduce special regulatory standards. The new rules oblige managers and distributors to fulfill the same conditions irrespective of whether their cryptoassets fall under the regulated types.
Companies who already have a license in HK or plan to get it have to conform to certain licensing terms. The conditions are the following:
- Have the required minimum share capital;
- Arrange appropriate storage mechanisms;
- Appoint independent auditors;
- Offer cryptofunds only to pro-investors;
- Exercise occasional control of cryptofunds;
- Follow the recommendations of the SFO;
- Ensure the reliability of cryptocurrency exchanges.
Obtaining a license
The above standards are an absolute must for obtaining a cryptocurrency license. Without fulfillment of them, a company can be disqualified from the assessment.
Additionally, there are more requirements related to cryptocurrency platform operators:
- Provide services only to pro-investors;
- No trading with cryptoassets that were issued a year of ICO completion or before the first profit;
- Carry out all activities under an SFC-licensed legal entity;
- No providing of financial services to customers;
- Receive clients’ consent prior to performing any transactions;
- Comply with all regulatory requirements.
Conclusion
After the publication of new regulation standards, it is expected that the need to classify every single cryptoasset will be eliminated, no matter if they are considered securities or not. Yet it is predictable that current requirements are to be amended in the future in order to deal with existing legal gaps such as:
- Taxation of cryptoassets in Hong Kong;
- Uniform audit standards and requirements for cryptocurrency assets.
Would you like to open a company focuses on crypto activity in Hong Kong, too? Specialists from COREDO would help you obtain a license for cryptocurrency activities or consult you on any other related issues.