Licensing of Virtual Asset Service Providers in Hong Kong
A new licensing regime for Virtual Asset Service Providers (“VASPs“) is due to come into effect in Hong Kong on 1st June 2023.
VASPs will be considered as Hong Kong companies that are engaged in operating a Virtual Asset (“VA“) exchange in Hong Kong.
Under this new licensing regime, VASPs will be required to apply for a VASP license with the Securities and Futures Commission (“SFC“).
It should be noted that at this stage, the new licensing regime only covers VASPs that operate a VA exchange and does not include the provision of other VA-related services. For example, in a May 2021 consultation by the Financial Services and Treasury Bureau (“FSTB“), it was stated that the new licensing regime would not VA cover peer-to-peer platforms. However, it is conceivable to assume that should the implementation of the VASP regime be successful, it is likely that the regime could be expanded to include a wider variety of VA businesses.
PDF version: VASP Licensing Summary
Operating a VA Exchange
Definition: Operating a VA exchange will be defined as providing services through means of electronic facilities.
Whereby:
- offers to sell or purchase virtual assets are regularly made or accepted in a way that forms or results in a binding transaction; or
- persons are regularly introduced, or identified to others so that they can negotiate or conclude (or have a reasonable expectation of negotiating or concluding) sales or purchases of virtual assets.
Where client money or client virtual assets comes into the direct or indirect possession of the person providing the service.
What is Virtual Asset?
Definition: Virtual Assets will be broadly defined as a cryptographically secured digital representation of value.
- Is expressed as a unit of account or a store of economic value.
- Functions (or is intended to function) as a medium of exchange accepted by the public as payment for goods or services or for the discharge of a debt, or for investment purposes.
- Can be transferred, stored or traded electronically.
Key VASP Licensing Elements
Eligibility for VASP licensings
- Hong Kong incorporated companies which have a permanent place of business in Hong Kong; or
- Overseas companies which are registered under the Hong Kong Companies Ordinance (Cap. 622).
Appointment of Responsible Officers
- At least two Responsible Officers (“ROs“);
- At least one RO must be an executive director of the VASP and if the VASP has more than one executive director, they must all be appointed as ROs;
- At least one RO must be ordinarily resident in Hong Kong; and
- At least one RO must be available at all times to supervise the business.
SFC approval of premises
- At least two Responsible Officers (“ROs“);
- At least one RO must be an executive director of the VASP and if the VASP has more than one executive director, they must all be appointed as ROs;
- At least one RO must be ordinarily resident in Hong Kong; and
- At least one RO must be available at all times to supervise the business.
Fit and proper test
- An applicant for a VASP licence, its ROs, licensed representatives, directors and ultimate owners will be required to satisfy a fit and proper test.
- “Ultimate owner” is defined to include any individual who owns or controls (directly or indirectly) more than 25% of the issued share capital of the VASP; controls more than 25% of the voting rights at its general meetings; or controls its management
Licensed Representatives
- Individuals who will provide VA services on behalf of a VASP will need to be approved by the SFC as licensed representatives accredited to the VASP.
Obligations of Licensed VASPs
- Compliance: Compliance with AML/CTF requirements
- Restrictions: Licensed VASPs will only be allowed to provide services to professional investors, at least during the initial stage of the licensing regime.
- Annual Returns: Filing of annual returns and fees.
- Notifications: The SFC will need to be notified of various matters (examples listed below).
- UBO Approval: Any person who proposes to become an ultimate owner of a licensed VASP must be approved in writing by the SFC.
- Audit: Auditor appointment and preparation of audited accounts.
The SFC will need to be notified of various matters including:
- Any change in any information provided by the licensed VASP or its ultimate owner;
- An intention to cease business as a VASP;
- A change in the address at which a VA service is provided;
- A change in the VASP’s directors;
- An auditor of a licensed VASP or an associated entity ceasing to act;
- A licensed representative ceasing to act for a licensed VASP.
