Hong Kong Securities Regulatory Commission warns that unlicensed virtual asset trading platforms may face high fines, prison terms

Hong Kong’s Securities and Futures Commission has been outspoken about cryptocurrency compliance in the region.

Hong Kong’s Securities and Futures Commission (SFC) issued a warning to virtual asset trading platforms (VATPs) involved in its conduct on Monday, August 7, highlighting potential legal and regulatory ramifications.

This notification follows the SFC’s observations of unlicensed VATPs falsely claiming to have filed license applications, as well as other non-compliant activities, including launching new services and products under existing entities that may violate new regulations.

The warning is part of a broader effort by Hong Kong authorities to regulate the booming virtual asset industry. According to the new system, virtual asset service providers need to apply for a license from the China Securities Regulatory Commission, and the transition period is extended to May 31, 2024, so that virtual asset service providers can prepare for compliance.

Misleading Statements, Irregular Activities

According to the SFC, some unlicensed VATPs misleadingly claimed to have filed license applications when in fact they had not, creating a false sense of reassurance among the public. The committee also noted cases of VATP setting up new entities in Hong Kong to provide virtual asset services without complying with legal and regulatory requirements.

Fraud or reckless misrepresentation to induce transactions in virtual assets could result in fines of up to $1,000,000 and/or imprisonment of up to seven years, the SEC warned.

Regulatory Efforts

Hong Kong has been striving to strike a balance between encouraging the development of the cryptocurrency industry and ensuring regulatory compliance. The Hong Kong Monetary Authority (HKMA) has previously urged banks to accept cryptocurrency clients while introducing a new licensing regime for cryptocurrency exchanges to promote clear regulation.

However, traditional banks remain cautious amid potential regulatory backlash and concerns over anti-money laundering and know-your-customer issues with cryptocurrency exchanges.

In May, the SEC eased requirements for cryptocurrency exchanges and revised its guidelines due to a shortage of responsible persons (ROs) in the field. The adjustment is seen as a pragmatic approach to address the lack of experienced talent in the fast-growing virtual asset industry.

Investors warn and call for public vigilance

The CSRC’s warning is also a reminder to retail investors that:

“…be wary of the risks of trading virtual assets on unregulated VATPs. If a VATP ceases to operate, crashes, is hacked, or otherwise suffers any misappropriation of assets, investors may face losing their holdings on the VATP.” The entire investment is at risk."

Most VATPs accessible to the public remain unregulated, and the SFC has pledged to update the list of virtual asset trading platforms on its website upon approval. Currently, only OSL Exchange and HashKey Exchange are regulated in Hong Kong.