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Clifford Chance

Clifford Chance


Talking Tech

Securities and Futures Commission finalises new regulatory requirements for VATP operators

Crypto Fintech Banking & Finance 31 May 2023

The Securities and Futures Commission (SFC)  has published the outcome of its consultation relating to updated regulatory requirements for virtual asset trading platforms (VATP). In this article, we outline the key SFC's responses and updates under the new regulatory requirements. 

On 23 May 2023, the SFC published its concluded consultation on the proposed regulatory requirements for Virtual Asset Trading Platform (VATP) operators licensed by the SFC. The key comments received were related to retail access to licensed VATPs, token admission criteria, insurance/compensation arrangements, anti-money laundering and counter-financing of terrorism (AML/CFT) matters and transitional arrangements.

Retail access to licensed virtual assets

Retail access is currently limited only to VA future ETFs listed on the Hong Kong Stock Exchange (HKEX).

The SFC will now allow retail access to VATP services, subject to robust investor protection measures and extensive retail investor education regarding the risks involved in investing in virtual assets. These requirements cover (1) Onboarding, (2) Governance, and (3) Disclosure Obligations.

Onboarding Requirements

Onboarding requirements will require a holistic assessment of the investor's knowledge of virtual assets, which forms part of the revised VATP Guidelines.

The SFC's view is that individual professional investors will remain subject to the same requirements as retail investors, and therefore no exemptions are allowed.


The SFC will require VATPs to establish a token admission and review committee. These committees should include the members "principally responsible for" different areas of the platform, a category which will include at least the corresponding managers-in-charge of the platform operator.

Disclosure Obligations

The SFC will require licensed VATPs to act with due skill, care and diligence when disclosing information. The disclosure obligations are further refined in the VATP Guidelines to require platform operators to take all reasonable steps to ensure the product specific information disclosed is not false, biased, misleading or otherwise deceptive.

Token Admission Criteria

The SFC has provided two sets of criteria for token admission, namely general token admission and specific token admission.

General token admission criteria

General token admission criteria apply to the admission of virtual assets for trading, and include, amongst others, factors ranging from the management background, supply / demand / liquidity of the asset, the technical features of the virtual assets.

The primary concern relating to the general criteria was the potential onerous compliance burden VATPs faced while conducting ongoing due diligence and monitoring of virtual assets. However, the SFC has deemed it inappropriate to provide any exemption from conducting due diligence, as analogously, intermediaries are not exempt from conducting due diligence on their investment products as well.

Specific token admission criteria

Specific token admission criteria refer to the criteria that virtual assets must meet before being made available to retail clients. These conditions require that the virtual asset be included in at least two "acceptable indices" issued by at least two independent index providers.

However, the SFC has emphasised that this criterion is only the minimum, based upon the underlying principle that tokens accessible by retail investors should be less prone to market manipulation across the virtual asset market as a whole. A VATP cannot therefore rely solely on meeting the specific token criteria to admit tokens for trading.

Insurance/compensation arrangements

VATPs are required to have insurance coverage or a compensation arrangement for the virtual assets held in their custody.

For assets held in cold storage, the SFC viewed that the custody risks posed are similar to those associated with client assets in traditional financial markets, and are thus prepared to lower the coverage threshold to 50%, on the basis that 98% or more of client virtual assets will be held in cold storage.

For assets held in hot storage, the SFC maintains a requirement of full insurance coverage.

AML/CFT matters

The Travel Rule

The SFC will implement the Travel Rule, which requires licensed VATPs to:

  • obtain, hold and submit required information about an originator and recipient to the beneficiary institution immediately and securely, while the VATP acts as the ordering institution
  • obtain and hold the required information from the ordering institution, while the VATP acts as the beneficiary institution
  • where there is a virtual asset transfer between the originating and beneficiary institutions.

However, noting that VATPs may require more time to develop systems for the immediate submission of said required information, the SFC will accept submissions on an "as soon as practicable" basis as an acceptable interim measure until 1 January 2024.

Counterparty due diligence and additional measures

A VATP is expected to perform due diligence measures using a risk-based approach to screen any virtual asset transfers, given that risk exposures may change over time.

Disciplinary fining guidelines

The SFC will use the same set of fining criteria for both Securities and Futures Ordinance (SFO)-licensed VATPs and Anti-Money Laundering and Counter Terrorist Financing Ordinance (AMLO)-licensed VATPs, given that the activities carried out by the two types are essentially the same. 

Transitional arrangements and implementation details

License applications

Presently, there are two types of licenses that a VATP can obtain – an SFO-license for trading security-type virtual assets, and an AMLO-license for non-security type virtual assets. Generally, the AMLO-licensing is intended to cover centralised VATPs that operate similarly to traditional SFO-licensed automated trading venues.

As a virtual asset's classification can change from security to non-security and vice versa, the SFC considers it prudent for VATPs to be dually licensed under both the AMLO and SFO licensing regimes.

To reduce the administrative overhead, the SFC will adopt a streamlined application that enables prospective VATPs to submit one consolidated application for both licenses. Any individuals appointed as a responsible officer under one regime can also be concurrently appointed as a responsible offer under the other regime, which will further reduce the burden on VATPs.

Transitional Arrangements

Existing SFO licensed VATPs will need to comply with the new VATP Guidelines within 12 months, as compliance with these guidelines will be a licensing condition.

Implementation Timetable

The VATP and AML Guidelines will become effective on 1 June 2023.

Next Steps

The SFC will carry out further consultation regarding virtual asset derivatives and will publish further guidance on the dual-licensing regime.

The consultation conclusions and swift commencement of the Guidelines will help enhance Hong Kong's position as a virtual asset hub, and represent the exciting next step in Hong Kong's virtual asset ecosystem.


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