The Hong Kong Securities and Futures Commission (SFC) issued a warning on Monday, Aug. 7, to virtual asset trading platforms (VATPs) involved in what it practices, emphasizing the potential legal and regulatory consequences.
This notice comes on the heels of the SFC’s observation of unlicensed VATPs falsely claiming to have submitted licensing applications, and other non-compliant activities, including launching new services and products under existing entities that may be in violation of new regulations.
The warning is part of a broader effort by Hong Kong authorities to regulate the burgeoning virtual asset industry. Under the new regime, virtual asset service providers are required to apply for a license from the SFC, with a transitional period extending until May 31, 2024, to allow VATPs to prepare for compliance.
Misleading claims, non-compliant activities
According to the SFC, some unlicensed VATPs have misleadingly claimed to have submitted license applications when they have not, creating a false sense of assurance among the public. The commission has also noted cases where VATPs have set up new entities to provide virtual asset services in Hong Kong without complying with legal and regulatory requirements.
The SFC warned that engaging in fraudulent or reckless misrepresentation for the purpose of inducing trading in virtual assets could lead to a fine of up to $1,000,000 and/or up to seven years’ imprisonment.
Hong Kong has been working to strike a balance between encouraging the crypto industry’s growth and ensuring regulatory compliance. The Hong Kong Monetary Authority (HKMA) has previously urged banks to accept crypto clients while introducing a new licensing regime for crypto exchanges to foster clear regulations.
However, traditional banks remain cautious due to potential regulatory blowback and concerns over anti-money laundering and know-your-customer issues with crypto exchanges.
In May, the SFC eased requirements for crypto exchanges, revising its guidelines due to a shortage of responsible officers (ROs) in the field. This adjustment was seen as a pragmatic approach to a lack of experienced talent in the rapidly growing virtual asset sector.
Investor warning and call for public vigilance
The SFC’s warning also serves as a reminder to retail investors, reminding them:
“…to be wary of the risks of trading virtual assets on an unregulated VATP. Investors may face the possible risk of losing their entire investment held on the VATP if it ceases operation, collapses, is hacked or otherwise suffers from any misappropriation of assets.”
Most VATPs accessible by the public remain unregulated, and the SFC has pledged to update the list of virtual asset trading platforms on its website as approvals are granted. At present, only OSL Exchange and HashKey exchange are regulated within Hong Kong.
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