Licensing for crypto activities in Hong Kong

Not too long ago, in the end of 2020, a company OSL LTD has successfully received a license authorizing digital asset trade in Hong Kong. This is the first case ever a license of this kind was granted. The license gives the company the right to trade in virtual securities and also provide services that are completely automated. Moreover, OSL LTD will be able to start a platform for trading in digital assets in HK.

How Hong Kong regulates crypto activities

Thanks to the license, entities who hold it would be allowed to issue investment tokens and provide other services related to digital asset trading in Hong Kong. In 2019 the Securities and Futures Commission (SFC) introduced the new approach towards the licensing of digital asset platforms and also presented the new requirements.

The newly announced conditions mainly concerned the e-wallet insurance, stricter AML regulations, higher levels of customer awareness, asset segregation in customers’ ownership, and other controls. Although there were no novelties introduced that would be related to conventional asset trading itself, platforms that were trading in digital securities in Hong Kong encountered some new regulations.

Regulatory requirements for license holders

In order to be allowed to be a Licensed Operator, the platform must:

• Receive written approval from the SFC to offer new products and services such as securities and non-securities tokens;
• Send business reports to the SFC by the end of the second week of every month (additional information upon request must be provided, too);
• Invite an independent company for conducting a review of the platform’s business operations and submit a report to the SFC every year.

More requirements exist that are aimed directly on platforms’ activities:

• Financial resources – an operator with a license is required to keep liquid assets of the equivalent of minimum 12 months of its operating expenses;
• Due diligence – a Licensed Operator must conduct due diligence on every virtual asset before it is admitted to the platform for trading;
• Prevention of money misconduct – a Licensed Operator needs to monitor, prevent, and report abusive or manipulative financial activities, and many other conditions.

Overall, the regulation in the crypto space has a positive influence on the industry in Hong Kong since it provides confidence and certainty to the investors. Thanks to the new opt-in licensing mechanism introduced by the SFC, investors are able to choose between regulated and non-regulated platforms. Resultingly, Hong Kong is becoming one of the leaders in regulating crypto platforms in Asia.

Are you planning to obtain a license and become a Licensed Operator? Contact us in COREDO to receive advice and assistance during the application process.