Crypto assets go mainstream in Hong Kong: New Guidance for intermediaries & banks on virtual asset-activities

Herbert Smith Freehills | March 2, 2022

This year has seen significant developments in Hong Kong as detailed regulatory guidance has been issued to enable institutions to navigate the evolving crypto-asset landscape. With increasing demand to provide virtual asset (VA)-related services and products, the guidance is a welcome step for the industry as it seeks to clarify what firms are able to do in this fast-changing area. In this article, we explore the detailed, and often complex, requirements on intermediaries and banks that wish to engage in VA-related activities.

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The guidance comes in the form of a joint circular issued by the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA). It was issued to intermediaries (ie, licensed corporations and registered institutions), and provides updated guidance on VA-related activities. This will replace the SFC’s circular of 1 November 2018 on distribution of VA funds.

The joint circular deals with investor protection issues arising from:

  1. distribution of VA-related products;
  2. provision of VA dealing services; and
  3. provision of VA advisory services.

In addition, the HKMA has issued a separate circular to provide guidance to authorised institutions (AIs) on what they should pay attention to when dealing with matters relating to VAs and VA service providers.

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The publication of this guidance follows a number of regulatory reforms in Hong Kong in the past few years relating to VAs. Herbert Smith Freehills has been following these developments closely and our earlier bulletins can be found here for reference:

  1. launch of the SFC’s regulatory framework for VA fund managers and VA fund distributors in November 2018 (now superseded) – see our bulletin here;
  2. publication of the SFC’s licensing conditions for VA fund managers in October 2019 – see our bulletin here;
  3. publication of the SFC’s position paper setting out a new regulatory framework for the licensing of centralised VA trading platforms in November 2019 – see our bulletin here;
  4. publication by the Financial Services and the Treasury Bureau of its consultation conclusions on a regulatory regime for VA service providers in May 2021 – see our bulletin here; and
  5. publication of the HKMA’s discussion paper on crypto-assets and stablecoins in January 2022 – see our bulletin here.

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