Hong Kong's virtual asset transaction supervision will be implemented and retail transactions will be protected in detail

Golden Financial Reporter Jessy

On May 23, the Hong Kong Securities and Futures Commission issued the "Consultation Summary on the Proposed Supervision and Management Regulations Applicable to Operators of Virtual Asset Trading Platforms Licensed by the Securities and Futures Commission" (hereinafter referred to as the "Consultation Summarize").

According to the Hong Kong Securities Regulatory Commission, it will publish in the Gazette on May 25, 2023 the "Guidelines Applicable to Virtual Asset Trading Platform Operators", "Anti-Money Laundering and Terrorist Sub-asset Set Quotes", "Securities and Futures Commission Publish the Guidelines for Stopping Money Laundering and Terrorist Fund Collection applicable to licensed corporations and associated entities of virtual asset service providers licensed by the Securities Regulatory Commission and the Securities Regulatory Commission’s Guidelines for Disciplinary Actions.

And from May 25th, the application form for the virtual asset trading platform to apply for the relevant licenses under the Securities and Futures Ordinance and the "Money and Terrorist Fund Combination Ordinance" will also be published in the Gazette and will be released in June. Applications will be accepted on the 1st.

Detailed regulations are used to protect the rights and interests of traders

Jinse Finance and Economics reporter summarized the "Consultation Summary" published today, from which we can also get a glimpse of the key contents of the upcoming guidelines. The following are some key regulations on protecting the interests of exchange users:

1. In terms of preventing market manipulation and illegal activities, exchanges are required to formulate policies and monitoring measures to conduct independent review of suspicious price surges, and immediately restrict or suspend trading after illegal activities occur after manipulation.

2. What kind of people can become customers of Hong Kong Virtual Currency Exchange? According to the consultation summary: the exchange must implement various measures in the review of customers, such as checking the IP address to prohibit customers from countries or regions that are not allowed, and also need to have considerable measures to detect the use of virtual IP addresses. customer of.

At the same time, before opening an account, investors must first submit their real identity certificates and financial status, and the exchange should check whether they have received training related to virtual assets, whether they have experience in virtual asset transactions in the past, and whether their work is related to virtual assets. To determine whether it is eligible to open an account.

3. In terms of protecting customer assets, exchanges are required to store 98% of customer virtual assets offline except for a few cases approved by the China Securities Regulatory Commission.

4. In terms of risk management, there should be some monitoring, so that operators can prevent wrong operations, block user transactions, and cancel any unexecuted transaction instructions on the platform. And trading platforms are required to maintain independent audits.

Dual license application only needs to submit one consolidated application form

The consultation summary brings together 152 submissions received during the consultation period, from industry and professional organizations, professional and consulting firms, market participants and individuals, licensed corporations, individuals and other stakeholders who provided these 152 submissions By.

In these submissions, the majority of respondents agreed with the proposal to allow licensed virtual asset trading platforms to provide services to retail investors. Most respondents agreed to impose requirements on licensed virtual asset trading platforms to establish business relationships with retail clients. Most respondents agreed with the creation of a token inclusion and review committee. Most respondents agree that licensed virtual asset trading platforms should consider general token inclusion criteria before including any virtual assets for trading. The majority of respondents expressed support for the requirement for licensed virtual asset trading platforms to have insurance or reimbursement arrangements for the risks associated with the custody of client assets. A number of respondents suggested that the SFC should allow the appointment of third party custodians for the safekeeping of client virtual assets, given the technical expertise of third party custodians. Respondents generally support the Council to allow licensed virtual asset trading platforms to provide virtual asset derivatives trading services. Respondents generally welcome the inclusion of AML/CFT requirements for virtual assets in Chapter 12 of the “Guidelines on Anti-Money Laundering Applicable to Licensed Corporations and Virtual Asset Service Providers Licensed by the SFC”.

Regarding the license application, the SFC responded that for the scope of "providing virtual asset services", the system under the "Anti-Money Laundering Ordinance" will cover operations that are similar to traditional automated trading venues licensed under the "Securities and Futures Ordinance". Central virtual asset trading platform. Such platforms usually provide customers with virtual asset trading services using an automated trading system that can match customer trading instructions, and provide additional custody services along with such trading services. Therefore, those who provide virtual asset services (such as off-exchange virtual asset trading activities and virtual asset brokerage activities) without automated trading systems and additional custody services will not fall within the scope of the regime under the AMLO. Given that the terms and characteristics of virtual assets may evolve over time, the classification of a virtual asset may change from a non-security token to a security token (and vice versa). In order to avoid violating the requirements of the licensing system and ensure the continuous operation of its business, the virtual asset trading platform applies for approval in accordance with the existing system under the Securities and Futures Ordinance and the virtual asset service provider system under the Anti-Money Laundering Ordinance.

In terms of license applications, the Hong Kong Securities Regulatory Commission stated that it will adopt simplified application procedures so that dual license applications only need to submit a comprehensive application form. As for the responsible officer, the officer may be approved under both the Securities and Futures Ordinance and the Anti-Money Laundering Ordinance. Therefore, a dual-licensed virtual asset trading platform does not need to have four different responsible officers. Regarding the lack of talents with both virtual assets and traditional securities experience in the industry, the China Securities Regulatory Commission expressed its willingness to adopt a pragmatic approach, and the details will be supplemented through more guidelines.