New legislation tailored to regulate the crypto space in Hong Kong aims to implement a licensing regime for crypto service providers. The respective changes to the region’s anti-money laundering (AML) rules have been submitted to its legislature while a recently published report examines relevant threats.
Hong Kong Lawmakers to Review Bill Aligning Crypto Sector With Financial Industry
Amendments designed to govern the cryptocurrency market in Hong Kong have been presented to the members of the Legislative Council of China’s special administrative region. The Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022, which was published in the government gazette in June, needs their approval in two readings to become law.
The authors of draft seek to introduce licensing for virtual asset service providers (VASPs) and registration for dealers in precious metals and stones (DPMS). The goal is to impose anti-money laundering and counter-terrorist financing obligations on the businesses operating in the two sectors.
Entities working with cryptocurrencies that want to launch a trading platform, for example, would have to obtain a license from the Hong Kong Securities and Futures Commission (SFC) and fulfill a number of requirements. The proposal takes into account the recommendations of the Financial Action Task Force on Money Laundering (FATF) which sets the global standards in the field.
The new requirements for VASPs are comparable to those that apply to traditional institutions in the financial services sector and they will have to meet similar financial adequacy requirements, Andrew Leelarthaepin, crypto exchange Bitstamp’s managing director for Asia Pacific, noted in article published by the South China Morning Post. In his opinion, that recognizes crypto firms as a component of Hong Kong’s financial system. The executive elaborated:
Put simply, VASPs can expect to be regulated to the same standard as our institutional clients. The law recognizes VASPs as peer organizations within the financial services sector.
Under the upcoming legislation, the SFC will also be responsible to ensure that virtual asset service providers adopt proper listing and trading policies as well as financial reporting and disclosure procedures. The Commission will also observe the implementation of mechanisms designed to prevent market manipulation and conflicts of interest.
As legislators prepare to approve the new regulatory framework, the latest edition of Hong Kong’s Money Laundering and Terrorist Financing Risk Assessment Report has paid particular attention to the threats and vulnerabilities in the crypto space. While acknowledging their potentials and increasing popularity, the document also highlights the vulnerability of virtual assets to various risks and the challenges they pose for investor protection.
How do you think will the new regulations affect the crypto industry in Hong Kong? Share your expectations in the comments section below.