Hong Kong’s Securities and Futures Commission (SFC) has recently announced it will conduct in-site office inspections for the crypto platforms seeking licensing. The watchdog highlighted that the 18 “deemed-to-be-licensed” applicants would have to undergo the examination to receive approval of their application.
SFC Announces Crypto Inspection
On Tuesday, the SFC revealed that it would inspect the platforms applying to become licensed virtual asset trading platforms (VATPs) in Hong Kong. The examination will occur in the coming months while the deemed-to-be-licensed VATP applicants pursue their applications.
The on-site inspection will focus on the crypto platforms’ safeguarding of client assets and Know-Your-Customer (KYC) processes to determine the company’s compliance with the SFC’s regulatory requirements.
Excerpt of the SFC’s announcement. Source: SFC
The inspection findings “will feed into the license application process,” which requires VATPs and their owners to comply with all applicable laws and regulations. According to the announcement, any violation or non-compliance of key regulatory requirements will result in the license being denied.
Moreover, failing to meet investors’ protection regulations during the inspection could result in the SFC taking other regulatory actions against crypto platforms if it considers them necessary.
The regulator also reminded the applicants they must comply with all of SFC’s regulatory requirements and licensing conditions during the application process. These conditions include preventing Mainland Chinese residents from accessing the platforms’ virtual asset-related services, marketing their services, or onboarding retail users.
The SFC does not expect these applicants to actively market their services or onboard new retail clients prior to demonstrating the actual implementation and effectiveness of their policies, procedures, systems, and controls to the satisfaction of the SFC and being formally licensed.
Non-Contravention Period Ends This Week
In the announcement, the SFC pointed out that the key deadline was approaching. Hong Kong’s watchdog reminded crypto platforms that the non-contravention period for VATPs operating in the jurisdiction ends on June 1, 2024.
As reported by Bitcoinist, the SFC issued a new regulatory guideline that required all VATPs operating in Hong Kong to submit a license application by February 29. After the deadline, the crypto platforms that didn’t apply for a license had a non-contravention period under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO).
However, by June 1, all VATPs remaining in the area must be licensed or “deemed-to-be-licensed” VATP applicants under the AMLO. The companies that continue to operate after the designated period will face legal actions:
It is a criminal offense to operate a VATP in Hong Kong in breach of the AMLO, and the SFC will take all appropriate actions against any breaches of the law.
As the end of the non-contravention period approaches, Hong Kong’s regulator urged investors in the area to trade virtual assets only on SFC-licensed platforms. Additionally, Hong Kong investors were reminded that the VATP applicants are not formally licensed despite undertaking measures to comply with the SFC.
At the time of this writing, only HashKey Exchange and OSL Exchange are licensed VATPs operating in the area. The other 18 VATPs await the SFC’s decision on their license applications.
Total crypto market capitalization is at $2.5 trillion in the three-day chart. Source: TOTAL on TradingView
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