Regulators have stated that they are willing to welcome companies with “genuine operations and genuine business practices,” which may include having an office or recruiting employees in Hong Kong.
Hong Kong launched its Virtual Asset Trading Platform (VATP) handbook at the beginning of the month in an effort to promote itself as a centre for the cryptocurrency industry. The Securities and Futures Commission (SFC), which will also oversee all licensing, has laid down the rules for cryptocurrency businesses wishing to operate in the nation.
The instructions have now been translated and published by Wu Blockchain, with commentary on them from Chris Lee, the founder of TKX Capital, and Gilbert Ng, an attorney in the High Court of the Hong Kong Special Administrative Region.
“Transitional agreements” are designed to give crypto companies doing business in the country a one-year trial term. If everything checks out, the companies can then submit an application for a business license in 2024.
The translated document states that businesses will be permitted to function provided the SFC finds they have “genuine operations and genuine business practices.” This only applies to trading platforms for non-securities, according to the document.
What do “genuine operations and genuine business practices” mean? The SFC has decided on a number of things, such as whether the platform is based in Hong Kong, whether it is managed and run by local employees if it has an office there, and a number of other parameters.
The rules in Hong Kong aim to place more accountability on operators, or the people in charge of running crypto exchanges. It proves that “regulated individuals” like directors, accountable officials, and managers are present.
These people must pass a “fit and proper” test in accordance with the recently adopted rules and regulations. Officers of cryptocurrency firms will be required to demonstrate relevant experience in regulated contexts, even if such experience was gained abroad.
According to the handbook, companies which “actively market to Hong Kong residents” are subject to regulation. Additionally, there are guidelines which decide whether a business needs an SFC license, such as whether it has an in-depth marketing plan focused on the city’s retail investors or whether trading in Hong Kong dollars is permitted.
After the dismal and disappointing performances of some cryptocurrency companies this year, it seems Hong Kong’s regulators are adopting such a firm stance on corporate responsibility.
Additionally, Hong Kong is working to establish the regulatory environment that will draw global digital asset companies despite its closeness to the notoriously anti-crypto China.