Digital currency exchanges in Hong Kong will soon have to apply for a license before they are able to serve local traders if a new proposed bill sails through. The bill will also restrict their services to qualified investors in what has been a very controversial inclusion.
Hong Kong has been one of the world’s pioneers in digital currency adoption. The city-state has been home to some of the biggest digital currency entities, from exchanges like Crypto.com and the embattled BitMEX to projects such as the controversial stablecoin Tether.
For the longest time, its laws have been lax with digital assets, but the government seeks to change this with proposed amendments to its financial laws.
In a recently published discussion paper, the Hong Kong government revealed its proposals “to enhance the regulatory regime for combating money laundering and terrorist financing (“ML/TF”).”
This, the paper says, will be in fulfillment of the state’s obligations under the Financial Action Task Force (FATF).
One of the proposals is to launch a licensing regime for virtual asset service providers (VASPs). Acknowledging the rapid rise in digital currency interest, the paper claimed that they pose aggravated money laundering risk due to their anonymity and decentralization (although Bitcoin itself is private, not anonymous).
The proposed licensing regime will cover all VASPs locally incorporated or with a permanent place of business in Hong Kong and offer any form of service that includes a virtual asset, which the paper describes as “a digital representation of value that is expressed as a unit of account or a store of economic value; functions (or is intended to function) as a medium of exchange accepted by the public as payment for goods or services or for the discharge of a debt, or for investment purposes; and can be transferred, stored or traded electronically.”
Any VASP must assign at least two officers to focus on compliance to qualify for the license. It must also have adequate financial resources, knowledge and experience, and risk management procedures. Furthermore, it must implement mechanisms that prevent market manipulative and abusive activities.
The VASPs will fall under the jurisdiction of the Securities and Futures Commission, which the proposed bill will assign the authority to oversee the sector.
Once the bill comes into effect, VASPs will have 180 days to apply for a license.