New legislation has been introduced in Hong Kong for the purpose of regulating the country’s crypto space and it is aimed at introducing licensing rules for the crypto companies that are offering their services. The legislation would make changes to the anti-money laundering (AML) rules in the region and these have been submitted to the legislature. Meanwhile, a report was recently published that focuses on the relevant threats.
Lawmakers to review the bill
Hong Kong is the special administrative region of China and the Legislative Council of the region has been presented with amendments to be made for governing the crypto industry. Back in June, the bill had been published in the government gazette and is titled the Anti-Money Laundering (AML) and Counter-Terrorist Financing Bill.
It can become law if two readings are approved. The aim of the draft’s authors is to introduce a licensing regime for virtual asset service providers (VASPs) and require those dealing in precious metals and stones (DPMS) to register themselves. Businesses that operate in two sectors would have to comply with counter-terrorist financing and anti-money laundering rules.
For instance, companies dealing in cryptocurrencies who want to introduce a trading platform would first have to obtain a license from the Securities and Futures Commission (SFC) in Hong Kong, which is the regulatory authority of the region. They have certain criteria that have to be met before a license is granted.
The proposal put forward is in accordance with the recommendations given by the FATF (Financial Action Task Force), which has the responsibility of setting global standards.
The requirements that will be applicable to VASPs under the new rules are the same as are established for traditional institutions operating in the financial sector. This means that crypto platforms would also have to meet the same requirements in terms of financial adequacy. It would mean that crypto companies would become a part of the financial system of Hong Kong, similar to traditional financial institutions and entities.
The rules would regulate VASPs in accordance with the same standards that apply to institutional customers. The new law would require virtual asset service providers as peer organizations that would be part of the financial services sector.
The SFC’s responsibility
In accordance with the legislation, the SFC would also have to ensure that the VASPs adopt proper trading and listing policies and also comply with disclosure and financial reporting procedures. Furthermore, they will also be responsible for implementing mechanisms aimed at preventing any conflict of interest and market manipulation.
With legislators gearing up to give approval for the new regulatory framework, the Money Laundering and Terrorist Financing Risk Assessment Report in Hong Kong has paid special attention to the vulnerabilities and threats that exist in the crypto ecosystem. The document acknowledged that cryptocurrencies are enjoying increasing popularity and they do have potential. But, it also highlighted that these virtual assets do carry risks and can be challenging in terms of providing protection to investors.