Hong Kong’s Securities and Futures Commission (SFC) has issued a stern warning to unlicensed virtual asset trading platforms (VATPs) engaging in improper practices. The regulator has observed that some unlicensed VATPs are falsely claiming to have submitted license applications to the SFC, a fraudulent or reckless misrepresentation that is considered a criminal offense in the city.
“It is an offence for any person to make a fraudulent or reckless misrepresentation for the purpose of inducing another person to trade in virtual assets.”
Hong Kong’s SFC
The SFC’s statement emphasizes that such untrue and misleading claims give the public a false sense of assurance that the VATP is in compliance with regulatory requirements. Also, the regulator noted that some unlicensed VATPs have set up new entities to provide virtual asset services in Hong Kong, launching certain virtual assets for trading by retail clients, trading services in virtual asset derivatives, or arrangements involving virtual assets such as “deposits,” “savings,” or “earnings,” which are not allowed under the new regime.
These non-compliant activities may raise concerns about the VATPs’ intention to comply with the SFC’s legal and regulatory requirements and their fitness and properness to be licensed.
The SFC has also warned that license applicants who violate relevant regulations during a transitional period may not be granted a license, and it may take a dim view of past non-compliant behaviors that result in the need to unwind client transactions or withdraw a virtual asset admitted for retail trading.
Hong Kong’s new licensing regime and investor warning
Unlike the broader crackdown on cryptocurrencies in mainland China, Hong Kong has been more welcoming to crypto firms. In October, authorities released policy statements about cryptocurrencies to strengthen Hong Kong’s position as a global financial center. In December, the Legislative Council passed an amendment introducing a full licensing regime for virtual asset service providers, with the new licensing regime kicking off on June 1.
The SFC has also warned investors about the risks of trading virtual assets on unregulated VATPs. Investors may risk losing their entire investment held on the VATP if it ceases operation, collapses, is hacked, or otherwise suffers from any misappropriation of assets. The SFC has reminded investors to refer to the list of virtual asset trading platforms on its website to verify the licensing status of any VATP.
Last week, HashKey and OSL became the first two exchanges to obtain licenses to offer retail trading under Hong Kong’s new licensing regime. The SFC has emphasized that conducting unlicensed activities in Hong Kong is a criminal offense and that established entities of unlicensed VATPs operating in Hong Kong will also be subject to the new virtual asset service provider regime.
Nonetheless, the SFC’s warning highlights the regulator’s vigilance in monitoring the activities of unlicensed VATPs and its commitment to enforcing the new licensing regime. The warning serves as a reminder to both VATPs and investors of the legal and regulatory requirements and the potential consequences of non-compliance. As Hong Kong continues positioning itself as a hub for crypto firms, enforcing proper practices and adherence to regulations will be crucial in maintaining the integrity and reputation of the city’s financial industry.
