Hong Kong’s Securities and Futures Commission earlier this week published the hotly anticipated consultation paper proposing regulatory requirements for virtual asset trading platform operators. Global law firm Linklaters explores in detail its observations on the consultation paper and key issues which firms involved in VA should be aware of, including next steps and future arrangements. If you have any questions or would like to speak to a spokesperson at Linklaters, please feel free to reach out.
Key highlights include:
- Retail participation on VA trading platforms has been proposed, but subject to various investor protection measures including fairly stringent suitability requirements covering knowledge, risk tolerance, risk profile and maximum dollar exposure limits.
- For VAs made available to retail clients, trading platforms will need to obtain legal advice to be submitted to the SFC stating the token is not a security.
- The SFC will not allow VA platforms to encumber clients’ assets in any way, specifying no pledging, repledging, depositing, transferring or lending.
- VA platforms should not engage in proprietary trading, except for off-platform back-to-back trades to fill client orders or other limited circumstances as permitted by the SFC on a case-by-case basis. In addition, market making activities on a proprietary basis will not be permitted.
- A VA trading platform doing business in Hong Kong immediately before 1 June 2023 will be able to continue operations in Hong Kong provided it makes a licence application by 29 February 2024. If a VA platform does not intend to apply for a licence, then it will have until 31 May 2024 to wind down its Hong Kong operations.
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For further information, please contact:
Carl Fernandes, Partner, Linklaters