Hong Kong's Securities and Futures Commission (SFC) to commence disciplinary actions against unregistered exchanges and licensed entities without guarantees as the Carnival comes to a close.

The Securities and Futures Commission (SFC) of Hong Kong recently issued a statement reminding the public that the regulatory framework for virtual asset trading platforms will end on June 1, 2024. This means that all virtual asset trading platforms operating in Hong Kong will need to comply with the Anti-Money Laundering and Counter-Terrorist Financing Ordinance.

Compliance Deadline Approaching

The Securities and Futures Commission (SFC) of Hong Kong reminds the public that the period during which virtual asset trading platforms are not in violation of the Anti-Money Laundering Ordinance will end on June 1, 2024. All virtual asset trading platforms operating in Hong Kong must obtain a license from the SFC under the ordinance, or apply as "deemed licensed" applicants. Operating a virtual asset trading platform without a license will constitute a criminal offense, and the SFC will take all appropriate actions against this.

OKX and Others Have Withdrawn Applications, Hong Kong Blockchain Carnival Comes to a Close

Although during this year's Hong Kong Blockchain Carnival, various operators sang praises of Hong Kong's openness and claimed to actively apply for a Hong Kong license, in the end, most operators have voluntarily withdrawn their applications, with one being rejected. For instance, the well-known exchange OKX announced abruptly on 5/24 that it was withdrawing its Hong Kong application due to "business considerations," effectively signaling its exit from the Hong Kong market. On the other hand, the exchange Binance never submitted a compliance application in Hong Kong nor participated in the Hong Kong Blockchain Carnival.

One of the highlights of the Hong Kong Blockchain Carnival was the diverse development under the open license framework, yet ultimately, only OSL and Hashkey are the two actual license holders.

SFC Warns Investors: Choose Exchanges Carefully

The SFC urges investors to only trade on virtual asset trading platforms licensed by the SFC. Investors should refer to the "List of Licensed Virtual Asset Trading Platforms" on the SFC website to ensure that the platform they are using has been officially licensed.

Investors should note that applicants deemed licensed have not obtained a formal license. These platforms were operating in Hong Kong before the new regulations came into effect, and while they promised to improve policies, procedures, and monitoring measures, they still need to demonstrate the actual implementation and effectiveness of these measures to gain SFC's approval.

The SFC emphasizes that the issuance of a license by the SFC does not guarantee the performance or credit of any licensed virtual asset trading platform.

Applicants Deemed Licensed Must Operate Low-Key

Applicants deemed licensed for virtual asset trading platforms, as well as their ultimate owners, must fully comply with all regulatory requirements and licensing conditions set by the SFC. Before obtaining formal licensing, these applicants should not actively promote services or establish business relationships with new retail clients.

Mainland Chinese Residents Prohibited from Usage

The SFC reminds all virtual asset trading platforms and their ultimate owners to comply with all applicable laws and regulations, including preventing mainland Chinese residents from using their virtual asset services. Platforms must take all necessary measures to ensure that their controlling entities and affiliates comply with relevant laws.

Illegal Activities Discovered Will Prompt Immediate Rejection of Applications

The deemed licensed arrangement aims to balance investor protection and market development. However, this arrangement is temporary, and if any major regulatory violations regarding investor protection are found, the SFC will promptly reject the relevant license applications.

In the coming months, the SFC will conduct on-site inspections of applicants deemed licensed for virtual asset trading platforms, focusing on the implementation of customer asset protection and know-your-customer procedures. Inspection results will impact the licensing application process, and if any misconduct is identified, the SFC will swiftly reject the relevant applications and take appropriate regulatory actions.

The SFC's statement sets clear rules and expectations for the operation of virtual asset trading platforms, aiming to protect investor interests and promote healthy market development. Investors and platform operators should closely monitor relevant regulations and the latest developments from the SFC to ensure compliant operations.

Taiwan's Special Law Delayed Until Next Year

Compared to Hong Kong's legislative efficiency, Taiwan's special law, initially scheduled to be introduced in September, will be delayed until next year, followed by the submission for review. There is still a long way to go in terms of regulatory control for operators and investor protection.

Virtual Currency Special Law Unlikely to Be Introduced in September in Taiwan, Legislator: Framework for Legislation Will Be Proposed at the Earliest Next Year

Financial Supervisory Commission of Taiwan to Introduce New Regulations: Unregistered Exchanges Will Face Criminal Liability, Not Just Monetary Penalties