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Herbert Smith Freehills | Hannah Cassidy | Jun 27, 2022
The government acknowledges that the VASP licensing regime will be more rigorous and comprehensive than those in Singapore, the UK and Japan.
The Hong Kong government has gazetted amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) to enhance Hong Kong’s anti-money laundering and counter-terrorist financing (AML/CFT) regulatory regime. The amendments will be introduced into the Legislative Council (LegCo) for first reading on 6 July 2022. A LegCo brief sets out an overview of the amendments, which follows the consultation conclusions published by the Financial Services and the Treasury Bureau in May 2021 on the proposed changes (see our 2021 briefing).
VASP licensing regime
- A new licensing regime for virtual asset service providers (VASPs) to be administered by the Securities and Futures Commission (SFC).
- It is proposed that the AMLO amendments relating to the VASP licensing regime will come into effect on 1 March 2023.
- Once in force, any person who seeks to carry on a business of providing a virtual asset service (currently limited to operating a virtual asset exchange (VA exchange)) will be required to apply to the SFC for a licence.
See: Hong Kong’s Web3 ‘Mr. Metaverse’ vs. Mark Zuckerberg
Operating a VA exchange entails providing services through means of electronic facilities where:
- offers to sell or purchase virtual assets are regularly made or accepted in a way that forms or results in a binding transaction; or
- persons are regularly introduced, or identified to other persons in order that they may negotiate or conclude, or with the reasonable expectation that they will negotiate or conclude sales or purchases of virtual assets in a way that forms or results in a binding transaction; and
- client money or client virtual assets comes into direct or indirect possession of the person providing such service.
Virtual assets in scope
The broad definition of “virtual asset” (see below) will capture Bitcoin and “altcoins” as expected. Stablecoins and certain governance tokens will also be in scope. While NFTs are not usually recognised as a medium of exchange accepted by the public, it is possible that they may be brought in scope in the future as the Secretary for Financial Services and the Treasury will be empowered to prescribe by notice published in the Gazette whether a particular asset is to be considered a virtual asset under the AMLO.
See: Do Industry Operators, Researchers, and Regulators Agree On How Big Crypto Crime Is?
“Virtual asset” will be defined under the AMLO as a cryptographically secured digital representation of value that:
- is expressed as a unit of account or a store of economic value; and
- either:
- is used (or is intended to be used) as a medium of exchange accepted by the public, for any one or more of the following purposes – (a) payment for goods or services, (b) discharge of a debt, or (c) investment; or
- provides rights, eligibility or access to vote on the management, administration or governance of the affairs in connection with, or to vote on any change of the terms of any arrangement applicable to, any cryptographically secured digital representation of value; and
- can be transferred, stored or traded electronically; and
- satisfies other characteristics prescribed by the SFC by notice published in the Gazette;
Or alternatively:
- is a digital representation of value prescribed as a virtual asset by the Secretary for Financial Services and the Treasury by notice published in the Gazette.
Continue to the full article –> here
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