The Securities and Futures Commission (SFC) of Hong Kong has issued a warning to unlicensed providers of crypto trading services. Concerned about their engagement in “improper practices,” the regulator also said investors should be aware that some of these platforms may never actually apply for or obtain a license.
Hong Kong’s SFC Threatens Crypto Exchanges Abusing Transitional Arrangements Under New Licensing Regime With Legal Action
In a notice published Monday, Hong Kong’s securities and futures regulator said that some unlicensed virtual asset trading platforms (VATPs) have been engaged in what it called “improper practices.” The SFC warned the crypto firms about “potential legal and regulatory consequences.”
The Commission explained that while certain exchanges claim to have submitted license applications they have not done so in fact, giving users a false impression that they are in compliance with regulatory requirements. The SFC warned that making such misrepresentations is an offense.
On June 1, Hong Kong launched a new licensing regime for crypto service providers as part of efforts to restore its credentials as a leading financial center by becoming a hub for digital assets. While making this crypto-friendly move, the region indicated that companies should expect tight rules.
Transitional arrangements were put in place to give VATPs that were operating in Hong Kong before June 1, 2023 time to prepare for compliance with the requirements under the new licensing regime and they were allowed to continue to provide services until May 31, 2024.
The SFC said it found that some unlicensed VATPs had set up new entities to provide crypto services in Hong Kong, announcing intentions to apply for licenses for them. However, the services and products offered by some of these entities may not be in compliance with the requirements, the regulator noted.
The Commission also noticed that some unlicensed virtual asset service providers continue to launch new services and products under their existing entities that may not comply with the applicable legal and regulatory requirements.
“For example, they may, under new or existing entities, launch certain virtual assets for trading by retail clients, trading services in virtual asset derivatives, or arrangements involving virtual assets such as virtual asset ‘deposits,’ ‘savings’ or ‘earnings’ which are not allowed under the new regime,” the SFC explained and stated:
These non-compliant activities may raise concerns about the VATPs’ intention to comply with the SFC’s legal and regulatory requirements and fitness and properness to be licensed, amongst other issues.
Conducting unlicensed activities in Hong Kong is a criminal offense, the securities regulator emphasized. It also highlighted that most VATPs currently accessible by the public are unregulated and may, or may not, submit a license application in the end. The SFC warned investors to be wary of the risks of trading on an unregulated platform such as losing the digital assets they hold on it if it ceases operations.
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