Christopher Hui provides detailed update on regulation of virtual asset trading platforms to Legislative Council

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Christopher Hui

21st February 2024 – (Hong Kong) In response to the Honorable Carmen Kan’s inquiry, Mr. Christopher Hui, Secretary for Financial Services and the Treasury, offered a comprehensive update on the Government’s approach to regulating virtual asset trading platforms (VATPs) within the Legislative Council today.

The Government’s October 2022 Policy Statement on Virtual Assets (VA) in Hong Kong underscores its commitment to a regulatory framework that equates similar activities with similar risks. This framework, in alignment with international anti-money laundering and counter-terrorism financing standards, was reinforced by amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, establishing a licensing regime for VA service providers in June last year.

Specifically addressing the Honorable Kan’s questions, Mr. Hui provided a detailed breakdown as follows:

  1. The Securities and Futures Commission (SFC) has intensified public awareness efforts since last September, including the publication of a “List of Suspicious VATPs.” As of mid-February, 14 VATPs were flagged on this list. The SFC actively alerts the public through various channels and, depending on individual case specifics, it may investigate potential legislative breaches, collaborate with police for enforcement actions, or issue warnings to deter fraudulent token sales.
  2. Over the past three years, VA-related fraud cases have surged, with 1,397 incidents in 2021, 2,336 in 2022, and 3,415 in 2023. The financial stakes have also climbed, reaching $4,398 million in 2023. Arrests have been made, such as in the JPEX case with 70 individuals detained; however, prosecutions are pending based on individual case merits.
  3. A joint working group, pooling expertise from both the Police and the SFC, has been established to streamline investigations and enhance regulatory oversight. Since the inception of an information-sharing mechanism last December, over 100 cases involving VATPs have been scrutinized, with investigations launched based on a multitude of factors including local connections and legislative breaches.
  4. and 5. Enhancing regulatory measures further, the Financial Services and the Treasury Bureau initiated public consultations in early February on legislative proposals for licensing VA over-the-counter trading service providers, encompassing a broad range of VA activities. A separate consultation regarding the regulation of stablecoin issuers was also launched last December, with the aim to introduce a licensing regime under the Hong Kong Monetary Authority’s oversight.

Subject to the consultation outcomes, the Government intends to expedite legislative bills to the Legislative Council.

  1. Mr. Hui emphasised Hong Kong’s pioneering stance in adopting a comprehensive VA regulatory framework, highlighting the SFC’s stringent requirements for license applicants, including robust business models and risk management policies. The SFC’s guidelines ensure that only VAs with considerable market capitalization and liquidity are accessible to non-professional investors, and any new VA admission for retail trading requires the SFC’s prior consent. Proactive educational campaigns are also ongoing to inform the public about the perils of trading with unlicensed entities.