Hong Kong Digital Asset License
General information about the Hong Kong digital asset license
The VATP digital asset license in Hong Kong, standing for Virtual Assets Trading Platform, is a digital asset license that can be obtained by Hong Kong digital asset companies. The laws and rules applying to digital asset businesses are enforced and emitted by the Hong Kong Securities and Futures Commission (SFC), which is the dedicated regulator for digital asset activities.
From June 2023, the VATP framework has been overhauled, with the addition of a dedicated chapter for virtual assets in the Anti Money Laundering Ordinance (AMLO) and the issuance of guidelines for VATP by the SFC. For this reason, the Hong Kong digital asset license is also sometimes referred to as the AMLO license.
Hong Kong previously tolerated digital asset activity for companies registered under the rule of the Securities and Futures Ordinance. The few companies that secured and still operate under this framework before switching to the new one are referred to as SFO licensees.
To obtain a Hong Kong digital asset license, the project must establish a company in the city-state. It must have an office and domestic personnel (secretary, executive director, licensed representative, risk manager, information technology manager, etc. The company must hold a share capital of at least 5,000,000 HKD at all times.
Since the announcement of this new digital asset license framework, many projects have stated their willingness to obtain the Hong Kong digital asset license. The Asian city is reputed as a major financial and IT center with very favorable business conditions, making it an attractive jurisdiction.
Hong Kong Digital Asset License: Process and Duration
The process to obtain a Hong Kong digital asset license has been made comprehensive by the SFC. It is not an easy license to obtain, as it requires a real effort to establish the activity in Hong Kong (office, secretary, 1 executive director or more), integrity and transparency, a high level of share capital (5.000.000 HKD which is approximately 650.000 USD), and a competent team that has been approved by the regulatory authorities.
The duration is dependent on the quality of the application and the responsiveness of the digital asset project in answering the questions and expectations of the Hong Kong SFC. An emphasis is made on the law on fitness and property. This means that individuals and companies associated with the project will be scrutinized, among other things, on their competence, financial solvability, and absence of criminal records.
Numerous policies and procedures must be prepared in advance, preferably by experienced compliance lawyers and in cooperation with experienced officers, at every level of the activity:
- Cybersecurity assessment, technological audit;
- Financial statements and projections;
- AML-CFT and KYC systems, controls, supervision, and reporting mechanisms;
- Risk assessment for every element above, overviewed by a dedicated risk manager.
The different types of digital asset licenses in Hong Kong
The framework in Hong Kong is called “Virtual Assets Trading Platform Operators”, for it only regulates digital asset exchange platforms. The framework is composed of two licenses:
- The SFO license (until June 2023), which meant that the company was compliant with the Securities and Futures Ordinance, a law that does not specifically address digital assets but financial instruments and derivatives;
- The AMLO license (from June 2023), means that the company is compliant with the newly updated AML Ordinance of June 2023, whose chapter 5B is directly addressing the topic of virtual assets.
These two licenses are similar in what they allow a company to do. Starting in June 2023, it is only possible to apply for the AMLO license. Holders of the SFO license have been requested to prepare the transition for 2024.
Trading platforms are, however, not the only digital asset activity permitted in Hong Kong. The SFC Guidelines describe three other types of licenses:
- Virtual asset fund manager;
- Intermediaries dealing in or advising on virtual assets;
- Intermediaries distributing virtual asset-related products.
These licenses have specific sets of requirements in addition to the general VATP framework.
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