China Securities Regulatory Commission Issues Consultation Conclusions on the Supervision of Virtual Asset Trading Platforms

By: Securities and Futures Commission

The Securities and Futures Commission (SFC) today published the Consultation Conclusions on Proposed Regulatory Requirements Applicable to Operators of Virtual Asset Trading Platforms Licensed by the Securities and Futures Commission (Note 1).

During the consultation period, the SFC received 152 submissions from industry and professional organisations, professional and consultancy firms, market participants, licensed corporations, individuals and other stakeholders. Respondents generally welcomed the proposed provisions, while several respondents requested clarification from the Council. Having considered a wide range of comments and proposals, the SFC has amended or clarified some of the proposed requirements.

The overwhelming majority of respondents agreed with the Council's proposal to allow licensed trading platform operators to provide services to retail investors. The SFC will implement a series of appropriate measures to protect these investors, including ensuring suitability, good governance, enhanced token due diligence, inclusion criteria and disclosure in the process of establishing business relationships with customers.

Ms Leung Fung Yee, Chief Executive of the SFC, said: "Providing clear regulatory expectations can promote responsible development. Hong Kong's comprehensive virtual asset regulatory framework follows the principle of 'same business, same risk, same rules' and aims to provide investors with sound Safeguard and manage key risks, thereby promoting sustainable development of the industry and supporting innovation."

The "Guidelines Applicable to Operators of Virtual Asset Trading Platforms" will come into effect on 1 June 2023 (Note 2). The guidelines stipulate a number of standards and requirements applicable to licensed trading platforms, including safe custody of assets, segregation of client assets, avoidance of conflicts of interest, and network security. The SFC will provide additional guidance on the new regulatory requirements, other implementation details (including the licensing application process (Note 3)), and details of the transitional arrangements.

The Commission welcomes applications for licenses from virtual asset trading platform operators who are ready to comply with SFC standards. Operators who do not intend to apply for a license should proceed to wind down their operations in Hong Kong in an orderly manner.

The SFC will continue to work with the Investor and Financial Education Council to remind investors of the risks of investing on unregulated platforms. In particular, although the relevant regime will come into effect on June 1, 2023, the CSRC has not yet approved any virtual asset trading platform to provide services to retail investors, and most of the existing public-accessible virtual asset trading platforms are not subject to the CSRC will supervise.

Remark:

1 The SFC published the Consultation Paper on Proposed Regulatory Requirements Applicable to Operators of Virtual Asset Trading Platforms Licensed by the Securities and Futures Commission on 20 February 2023. The consultation period has ended on March 31, 2023. The proposed regulations cover safe custody of assets, know-your-customer procedures, anti-money laundering / terrorist financing, avoidance of conflicts of interest, inclusion of virtual assets for trading, prevention of market manipulation and irregular activities, accounting and auditing, risk management , and network security.

2 The China Securities Regulatory Commission will publish the "Guidelines Applicable to Virtual Asset Trading Platform Operators" and "Guidelines on Combating Money Laundering and Terrorist Financing (Applicable to Licensed Corporations and Companies Licensed by the Securities Regulatory Commission)" in the Gazette on May 25, 2023. Virtual Asset Service Providers), "Securities and Futures Commission Issued Guidance on Prevention of Money Laundering and Counter-Terrorist Financing Applicable to Licensed Corporations and Associated Entities of Virtual Asset Service Providers Licensed by the SFC" and the "Guidelines of the Securities Regulatory Commission on Disciplinary Penalties and Fines".

3 The Securities Regulatory Commission will publish the application form for virtual asset trading platforms to apply for relevant licenses under the Securities and Futures Ordinance and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance in the Gazette on May 25, 2023, and will publish in 2023 Applications will be accepted starting June 1.