New Hong Kong crypto regime: trading platforms falling foul already?

The implementation of the new licensing regime for virtual asset trading platforms (VATPs) in Hong Kong has led to several important points and incidents. The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615, "AMLO") now requires VATPs operating in Hong Kong to obtain a license or apply for one before conducting any activities or marketing campaigns. The Securities and Futures Commission (SFC) has issued a public warning regarding unlicensed VATPs engaging in improper practices. Investors should be cautious and verify whether a VATP is licensed by referring to the SFC's published list.

However, there is no published list to identify VATPs with pending applications, creating ambiguity for both VATPs and investors. The new regime allows certain VATPs, known as “pre-existing providers”, to continue operations without a license if they have applied by the end of February 2024. The lack of clarity regarding pending applications raises concerns about the legality of unlicensed VATPs' operations.

Following the SFC’s initial warning, they issued another warning specifically against JPEX, a cryptocurrency exchange platform. JPEX was holding itself out to be licensed, but the SFC confirmed that no entity within JPEX had applied for or obtained a license. As a result, numerous investors using JPEX filed complaints, claiming losses no less than HK$1.19 billion of virtual assets. Twelve individuals connected to JPEX have been arrested.

In light of these developments, there are several key takeaways:

1. Investors should conduct due diligence or seek professional assistance when engaging with VATPs to protect their virtual assets from loss or freezing.
2. VATPs must promptly prepare and submit their license applications and refrain from claiming to be licensed until approved by the SFC.
3. The SFC should consider providing guidance on the grace period given to pre-existing providers without licenses under the new regime.

Anyone in need of making license applications or seeking further information, please do not hesitate to contact us.