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In an effort to position itself as a crypto hub, Hong Kong kicked off its Virtual Asset Trading Platform (VATP) handbook at the start of the month. The Securities and Futures Commission (SFC) has provided the guidelines for cryptocurrency companies that wish to operate in the country, and will oversee all licensing.
Now an explanation of the guidelines by Gilbert Ng, lawyer in the High Court of the Hong Kong Special Administrative Region and Chris Lee, founder of TKX capital, has been translated and published today by Wu Blockchain.
The idea behind “transitional agreements” is to offer a one-year trial period for crypto firms that operate in the country. The companies can then apply for a business license in 2024, if they check all the boxes.
According to the translated publication, companies will be allowed to operate if the SFC has determined them to have “genuine operations and genuine business practices.” The document noted that this applies only to non-securities trading platforms.
What constitutes genuine operations and genuine practices? The SFC has determined several factors, including: whether the platform is based in Hong Kong, if it is controlled and operated by employees based in the city, if it has an office in there, and a number of other requirements.
Hong Kong’s guidelines look to put more responsibility on operators, or the individuals that are running cryptocurrency exchanges. It establishes the presence of “regulated individuals” such as directors, responsible officers and managers.
These individuals, according to the newly approved rules and regulations, will need to pass a “fit and proper” test. This will require crypto firm officers to prove relevant experience in regulated environments, even if that experience is in other countries.
The handbook also states that companies “actively marketing to Hong Kong residents,” come under purview of regulators. There are also guidelines that establish whether a company requires an SFC license, such as the existence of a detailed marketing plan aimed at the city's retail investors or if trading is allowed in Hong Kong dollars.
It appears regulators in Hong Kong are taking such a firm stance on a company’s responsibility after this year's dismal and disappointing performances by some cryptocurrency companies.
And despite its close proximity to the notorious anti-crypto China, Hong Kong is aiming to create the regulatory atmosphere that attracts digital asset companies from all over the world.