Hong Kong moves to tighten laws on virtual asset businesses

Hong Kong lawmakers are tightening regulations on virtual asset service providers (VASPs) amid upcoming updates to its Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill of 2022.

Photo credit: Leung Cho Pan / 123RF

The Legislative Council explained that to manage and mitigate the risks from virtual assets, it has the option of either prohibiting VASPs from operating in Hong Kong or licensing such businesses in order to subject them to some controls.

Under the amended bill, VASPs are required to obtain a license from the Securities and Futures Commission (SFC) to operate in the city. The SFC will also be able to restrict licensed VASPs from disposing of clients’ assets in the event of emergencies such as a default.

This recently happened to crypto lending firm Celsius, which froze transactions for all its users amid liquidity issues.

The Legislative Council also proposed that businesses providing or marketing virtual asset services without a license be punishable by a fine of up to HK$5 million (US$640,000) and up to seven years in prison.

In addition, companies that make a false or misleading statement when applying for a license will be punishable by a fine of up to US$130,000 and up to two years in prison. The bill was gazetted on June 26. No date has been set to pass the law.

“Considering our status as an international financial center and the development and adoption of virtual assets that have been taking place, the regulatory approach is considered more in line with our needs and situation,” the council said.

The incoming laws have reportedly put a damper on the industry, with formerly Hong Kong-headquartered crypto exchanges FTX and Bitmex leaving, as well as crypto advertisements – which were once common on Hong Kong’s streets – now nowhere to be seen. Some services, including OSL, Hashkey, and Huobi, are in the process of applying for relevant licenses.

See also: Move over UST, USDC’s the new face of crypto payments

Currency converted from Hong Kong dollar to US dollar: US$1 = HK$7.85.