Acting Hong Kong Secretary for Financial Services and the Treasury, Michael Chan, said at the meeting of the Legislative Council’s Panel on Financial Affairs on June 1 that Hong Kong’s proposed regulatory regime for virtual asset trading, custody, provision of advice, and management services does not intend to provide existing service providers with a transitional arrangement that is “deemed as having been granted a licence or registration,” in order to “avoid unclear regulatory circumstances.”
Scope and requirements of the proposed regulatory regime
According to Chan Hao-lian’s opening remarks, the new regulatory regime requires that anyone conducting virtual asset dealing, custody, providing advice, or management business in Hong Kong—unless exempt—must be licensed or registered with the Securities and Futures Commission (SFC). Recognised institutions and licensed money service providers that wish to provide virtual asset services must also register with the SFC.
The scope of application refers to regulated activities under the Securities and Futures Ordinance—Type 1 (dealing in securities), Type 4 (advising on securities), and Type 9 (asset management). Proposed penalties include: those without a licence are prohibited from actively promoting the relevant services to the public in Hong Kong; the penalties are aligned with the existing virtual asset trading platform regime.
Current state of virtual asset regulation in Hong Kong
According to the background presented by Chan Hao-lian, in June 2023 Hong Kong implemented the licensing regime for virtual asset trading platforms. There are currently 13 licensed platforms. Last August, the stablecoin issuer regulatory regime was implemented, and two licences have already been issued. The Cyberport Web3 hub currently brings together more than 310 Web3 companies. In the latest Global Financial Centres Index, Hong Kong ranks first globally in financial technology.
Common questions
Why are no transitional arrangements set up for existing virtual asset businesses?
In his remarks, Chan Hao-lian explained that the reason for not having transitional arrangements is “to avoid unclear regulatory circumstances.” The government will set an appropriate effective date, giving businesses time to adjust their business models. However, before that, existing businesses will not be regarded as having been licensed.
What is the legislative target timetable for Hong Kong’s full-chain virtual asset regulatory regime?
Chan Hao-lian said the government is drafting related legislative proposals, with the goal of submitting a draft amendment bill to the Legislative Council within 2026. Specific legislative milestones were not further explained in this round of remarks.
How should the industry prepare for the new regulatory regime?
Chan Hao-lian encouraged all industry stakeholders who are currently engaging in or intend to engage in relevant virtual asset businesses to “contact the regulatory authorities as early as possible” to initiate a pre-application process. At present, applications from six virtual asset trading platform applicants are still under review.
