The Hong Kong Securities and Futures Commission (SFC) has come forward in warning unlicensed crypto exchanges who are believed to be engaging in “improper practices”. Tagging it as “criminal”, the regulator has openly condemned exchanges who are reportedly conducting unlicensed activities in the country.
In doing the same, the SFC has issued a statement warning virtual asset trading platforms (VATPs) of the “potential legal and regulatory consequences of these improper practices. Some of these VATPs have falsely claimed to have submitted an application to the SFC.
Because of these untrue and misleading claims, they give the public a false sense of assurance about the VATP being in compliance with the regulatory requirements, said the SFC. Stating the repercussion for doing the same, SFC said: “It is an offence for any person to make a fraudulent or reckless misrepresentation for the purpose of inducing another person to trade in virtual assets. The SFC will take into account any misrepresentation made by an unlicensed VATP in considering its fitness and properness to be licensed should it eventually submit licence applications to the SFC.”
On the other hand, there also exist VATPs that do not comply with the SFC’s requirements. Recently, the SFC found out that some unlicensed VATPs set up new entities to provide virtual asset services in Hong Kong as they anticipate the transitional arrangements.
Under the new regime, transitional arrangements to regulate virtual asset service providers were designed to provide reasonably sufficient time for VATPs to prepare for compliance with the legal and regulatory requirements applicable to licensed VATPs. Many now deem themselves eligible under the transitional arrangements.
However, in its latest statement, the SFC stated that it is up to the regulator to decide if the deeming is applicable or not. The regulator added: “For example, they may, under new or existing entities, launch certain virtual assets for trading by retail clients, trading services in virtual asset derivatives, or arrangements involving virtual assets such as virtual asset ‘deposits,’ ‘savings” or ‘earnings’ which are not allowed under the new regime.”
It then reminded unlicensed VATPs that in addition to this, any other established entities of unlicensed VATPs which are operating a business in Hong Kong of providing virtual asset services will also be subject to the new virtual asset service provider regime. Therefore, they will need to apply for SFC licences or they should proceed to close their business in the country. Failure to do the same will be tagged as a “criminal offence”.
It then warned investors saying that a majority of the VATPs currently accessible by the public are unregulated. They have been asked to cross check with the list of virtual asset trading platforms published on the SFC’s website, which will be updated as and when the SFC approves a VATP to provide services to retail investors.
While being cautious in its dealings, Hong Kong has majorly been welcoming to crypto firms. The country’s lawmakers passed a law introducing a licensing regime for virtual asset service providers in the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill back in 2022.
This new licensing regime which kicked off on 1 June 2023 gave its first set of approvals to exchanges HashKey and OSL, giving them the licences to offer retail trading in the country.