Latest news about Bitcoin and all cryptocurrencies. Your daily crypto news habit.
A big drawback of the Virtual Asset Service Providers (VASP) Licensing Regime being introduced by the Hong Kong regulatory authorities could discourage many virtual asset (VA) exchanges from applying, PWC HK has noted in its review of the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022 which was published on 24 June 2022.
The network firm identifies that the Amendment Bill, which is scheduled to come into effect on March 1, 2023, will restrict licensees from serving retail customers who offer a large economic incentive for operating VA exchanges. Since the new regime will restrict the offering of services to professional investors only, it suggests that VA exchanges operating in Hong Kong currently should off-board retail customers orderly.
Introduced as part of Hong Kong’s statutory anti-money laundering and counter-terrorist financing (AML/CTF) obligations, the Amendment Bill will see VASPs getting a licensing regime alongside dealers in precious metals and stones who will get a registration regime. It will require any person seeking to operate a VA exchange in Hong Kong to apply for a license from the Securities and Futures Commission (SFC), meet a “fit and proper” test, the AML/CTF, and other regulatory requirements. The Bill will also enable the Hong Kong government to address some technical issues related to AML/CTF as identified in Financial Action Task Force (FATF) contexts.
While the regime will bring all cryptocurrency exchange-related activities under the SFC, notes PWC HK, it is also a concrete step in “closing the loop” on VAs – though it is not clear that VAs like non-fungible tokens or metaverse tokens would be subjected to the new regime.
“We expect further expansionary steps to be taken in the future until the SFC has comprehensive jurisdiction over all VA-related activities,” PWC HK states. “It is a significant development because, for the first time, the SFC is seeking to extend its governance directly over VA (including any type of VA that would not be typically caught by the definition of a ‘security’).”
The other drawback pointed out by PWC HK is the regulator’s expectations regarding the applicant’s level of sophistication and the build-out of its infrastructure as well as the ongoing cost of compliance. The firm says these together will set a high entry bar for participants.
The law firm, Gianni & Origoni, considers the upcoming regime to be more restrictive than those in Singapore or the United Kingdom. According to the proposed licensing regime, it is a criminal offense to operate a VA exchange in Hong Kong without a licence or to publicly promote/provide the services of an overseas exchange that is not licensed in Hong Kong. Offenders are liable to pay a fine of between HKD500,000 (about US$65,000) and HKD5 million as well as up to seven years in prison. Existing exchanges in Hong Kong have a 9-month transition period to file their applications with the SFC and confirm their compliance with all regulatory requirements while potential exchanges seeking the license need to complete the process before the March 2023 deadline.
“The future is certainly bright for the VA market in Hong Kong,” PWC HK states, as it praises the sufficient flexibility built in the regime, “ And we look forward to further regulatory development/innovation in this space.”
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.