Hong Kong Securities and Futures Commission (SFC) Doubles Number of Approved Virtual Asset Trading Platforms (VATPs)
The Hong Kong Securities and Futures Commission (SFC) has made significant strides in its regulatory efforts by more than doubling the number of approved virtual asset trading platforms (VATPs). This development marks a major milestone for the SFC as it continues to navigate the complex and rapidly evolving landscape of virtual assets.
A Rigorous Licensing Process
The four newly approved VATPs, namely Accumulus GBA Technology (Hongkong), DFX Labs, Hong Kong Digital Asset EX, and Thousand Whales Technology (BVI), have undergone a thorough licensing process. This process involves on-site inspections, rigorous scrutiny of their operations, and feedback from the SFC.
The inspections focused on several key areas, including:
- Safeguarding Client Assets: The SFC ensures that VATPs have robust systems in place to protect client assets, mitigating the risk of losses or theft.
- Know Your Customer (KYC) Processes: VATPs must demonstrate effective KYC procedures to verify the identity and authenticity of their clients.
- Cybersecurity: The SFC assesses the strength of a VATP’s cybersecurity measures to safeguard against potential threats and vulnerabilities.
According to Eric Yip, executive director of intermediaries at the SFC, "We have been proactively engaging with VATPs’ senior management and ultimate controllers which helps drive home our expected regulatory standards and expedite our licensing process for VATPs."
Striking a Balance between Regulation and Innovation
The SFC seeks to strike a balance between safeguarding the interests of investors and facilitating continuous development for the virtual asset ecosystem. Yip emphasized, "We have been proactively engaging with VATPs’ senior management and ultimate controllers which helps drive home our expected regulatory standards and expedite our licensing process for VATPs."
Operating Restrictions and Supervision
The newly approved exchanges will operate in a restricted scope and must perform vulnerability assessments and penetration tests through an independent third party with satisfactory results before operating restrictions are lifted. The SFC will supervise this process to ensure that the VATPs meet the necessary standards.
Circular Describing Expectations
To provide clarity on its expectations, the SFC released a circular describing its requirements for VATPs on December 18. This document outlines the key areas of focus for VATPs and serves as a guide for those seeking to operate in the virtual asset space.
Overview of Approved VATPs
All approved VATPs are licensed to:
- Deal with securities
- Provide automated trading services
- Operate a VATP
Applicant List and "Deemed-to-be-licensed" Status
Eleven VATPs remain on the applicant’s list, seven of which are ‘deemed to be licensed.’ This status indicates that the exchange conforms to Hong Kong’s Anti-Money Laundering and Counter-Terrorist Financing Ordinance.
The SFC webpage lists all applicants with a warning to users to trade only on licensed platforms. While it is possible to do business with exchanges ‘deemed to be licensed,’ this should not be considered as an endorsement or guarantee of their legitimacy.
Roadmap for Regulatory Advancement
According to SFC CEO Julia Leung, new licenses will be granted in batches as part of its roadmap through 2026. This roadmap aims to advance regulation, promote real-world asset tokenization, and explore blockchain technology.
Cryptocurrency Availability in Hong Kong
There are only four cryptocurrencies available for purchase in Hong Kong: Bitcoin (BTC), Ether (ETH), Avalanche (AVAX), and Chainlink (LINK). Retail cryptocurrency trading was legalized in Hong Kong in August 2023.
The SFC’s efforts to regulate the virtual asset space aim to provide a secure and transparent environment for investors. By maintaining high standards and engaging with VATPs, the SFC strives to balance innovation with investor protection.