Hong Kong: Unlicensed regulated virtual asset activities are punishable by a fine of $5 million and seven years in prison

Under the regulatory requirements, licensed virtual asset service providers are only allowed to offer their services to professional investors and are required to implement strict guidelines to determine which virtual assets can be traded on their platforms.

Hong Kong: Unlicensed regulated virtual asset activities are punishable by a fine of  million and seven years in prison

May 21 – The HKSAR Government’s public consultation on legislative proposals to amend the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (AMLO) has been completed.

According to a paper published by the government today, a licensing regime for virtual asset service providers will be established, requiring any person who intends to engage in the regulated business of a virtual asset trading platform in Hong Kong to apply for a license from the Securities and Futures Commission (SFC) and to meet the fit and proper criteria, and the licensee will be required to comply with the anti-money laundering and terrorist financing requirements set out in Schedule 2 to the AMLO and Other regulatory requirements designed to protect investors. Under the regulatory requirements, licensed virtual asset service providers may only provide services to professional investors and are required to implement strict guidelines to determine which virtual assets may be traded on their platforms.

In addition, the paper notes the high potential risk of virtual asset businesses operating in the virtual world and proposes effective and proportionate penalties for unlicensed virtual asset activities and non-compliance with regulatory requirements. Conducting regulated virtual asset activities without a license is punishable by a fine of $5 million and imprisonment for seven years and, in the case of a continuing offence, a further fine of $100,000 for each day during which the offence continues. Making false, deceptive or misleading statements in connection with an application for a licence in relation to any material matter is punishable by a fine of $1,000,000 and imprisonment for two years. Violation of statutory requirements to combat money laundering and terrorist financing is punishable by a fine of $1,000,000 and imprisonment for two years. Making fraudulent or reckless misrepresentations to induce the purchase or sale of virtual assets is punishable by a fine of $1 million and imprisonment for two years.

In fact, the Hong Kong Financial Services and the Treasury Bureau has been consulting the market on changes to crypto trading rules since last year. The agency said in a statement that it intends to introduce legislation in the upcoming 2021-22 session of the Legislative Council.

On Nov. 3 last year, Ashley Alder, chief executive of SFC.HK, said that the SFC announced a new licensing regime for virtual asset trading platforms, under which all virtual platforms operating in Hong Kong or targeting Hong Kong investors must apply for a license and be regulated by the authorities, regardless of whether they trade in security-based pass-throughs (Security The SFC has previously developed a set of optional regulatory frameworks for cryptocurrency trading platforms, but these frameworks have allowed certain trading platforms to operate outside of the scope of regulation,” the company said. (Note: Previously, the SFC in Hong Kong considered Bitcoin and Ether to be non-security pass-throughs, and platforms involved in trading non-security pass-throughs were not required to apply for SFC’s No. 7 license.)

Apparently, Hong Kong has a clear to go for cryptocurrency exchanges operating in Hong Kong, and Hong Kong’s move is also due to the need to comply with the anti-money laundering (AML) rules set by the FATF and as a way to fully regulate virtual exchanges.

As for the provision of services to professional investors, it has also been mentioned previously that according to the licensing rules of the Hong Kong Securities and Futures Commission, compliant institutions can only serve professional investors (Professional Investor PI). In Hong Kong, the definition of professional investor is to have $8 million in liquid assets (this $8 million does not include housing real estate, generally speaking, to provide a bank certificate of deposit or a monthly statement from a licensed securities company in Hong Kong, and to provide a record of transactions in the past year), and to have extensive investment experience in the past year.

Previously, an industry analysis pointed out that 90% of investors in the circle are non-professional investment clients Non-PI. Therefore, if the exchange applies for this license, it is possible that many non-professional investment clients will be lost and given to other platforms instead, and in view of this, some exchanges may leave Hong Kong.

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