In a stern warning to the crypto industry, the Hong Kong Securities and Futures Commission (SFC) has raised the alarm over improper business practices observed in certain unlicensed virtual asset trading platforms (VATPs). The commission’s statement, released today, highlights a series of deceptive and non-compliant activities that have caught the regulatory body’s attention.
Crypto Platforms Mislead Users
With the rise of cryptocurrencies and virtual asset trading platforms (VATPs), Hong Kong has seen a surge in activity in this new financial frontier. However, with innovation comes the need for regulation, and the Hong Kong Securities and Futures Commission’s (SFC) recent warning underscores the critical importance of oversight in the crypto market.
The SFC’s investigation has revealed that some unlicensed VATPs have been falsely claiming to have submitted license applications to the commission. These misleading claims have created a false sense of assurance among the public, leading them to believe that the platforms are in compliance with the SFC’s regulatory requirements.
Furthermore, the SFC has noticed that some unlicensed VATPs continue to launch new services and products that may not comply with the legal and regulatory requirements under the new regime. These non-compliant activities have raised serious concerns about the VATPs’ intention to comply with the SFC’s legal and regulatory requirements and their fitness to be licensed.
The SFC’s statement also addresses the transitional arrangements under the new regime to regulate virtual asset service providers. These arrangements were designed to provide sufficient time for VATPs operating in Hong Kong before June 1, 2023, to prepare for compliance with the legal and regulatory requirements applicable to licensed VATPs.
However, some unlicensed VATPs have set up new entities to provide virtual asset services in Hong Kong, publicly announcing their intention to apply for licenses. The services and products offered by some of these new entities may not be in compliance with the legal and regulatory requirements under the new regime.
Entities launching unauthorized virtual asset services, like trading for retail clients or offering “deposits” and “savings,” violate the new regulations. Such breaches question the VATPs’ commitment to SFC’s rules and their licensing suitability. The SFC will scrutinize past violations during licensing, especially if they could’ve been prevented. The SFC expects VATPs to show genuine efforts to correct these breaches, including orderly resolution of unauthorized transactions.
SFC Issues Warning To Investors
The SFC’s warning is not limited to VATPs alone. The commission has also taken the opportunity to warn investors about the risks of trading virtual assets on unregulated platforms. Investors are cautioned that unlicensed VATPs may mislead the public by claiming to have submitted license applications when they have not done so.
Most VATPs accessible by the public remain unregulated, and the SFC has warned investors to be wary of the risks of trading virtual assets on an unregulated platform. These risks include the potential loss of their entire investment if the VATP ceases operation, collapses, is hacked, or suffers from any misappropriation of assets.
The SFC’s recent alarm about improper business practices in unlicensed VATPs is more than just a warning; it’s a clarion call emphasizing the significance of regulation in ensuring the stability and integrity of Hong Kong’s crypto market. The city’s reputation as a global financial center hinges on its ability to provide a secure environment for investors, and the SFC’s proactive stance showcases its commitment to this goal.
From June 1, Hong Kong’s SFC began accepting crypto trading platform license applications. Licensed platforms can cater to retail investors if they ensure users understand the risks. The SFC’s initial policy recommendations were open to public feedback in February. The regulator suggests not allowing stablecoin trading for retail until specific regulations are in place.
According to the rules, crypto exchanges must always have a minimum capital of 5,000,000 Hong Kong dollars ($640,000). Monthly, they must report their liquid capital, loans, credits, and profit-loss analysis to the SFC. Regulated exchanges can only list tokens with a 12-month “track record.”
