HONG KONG SAR, CHINA Trends and Developments Contributed by: Sam Wu and Beverly Fu, YYC Legal LLP
licensees. Specifically, the SFC will require minimum paid-up share capital of HKD10 million and minimum liquid capital of HKD3 million, with flexibility to impose higher requirements calibrated to business scale and risk. On permitted activities, the SFC proposed to allow regulated custodians to provide core safekeeping, deposit and withdrawal functions, and to settle trans - actions for licensed VA dealers, as well as to allow staking services subject to robust safeguards consist - ent with guidance issued to VATPs. Exemptions are expected for group-only custody, limited self-custody of new tokens by private equity or venture capital fund managers and certain legal and accounting profes - sionals holding backup keys or acting under court appointments, alongside an exemption for licensed stablecoin issuers that only provide custody for their own stablecoins. VA dealing licence – extending beyond platforms The proposed VA dealing licence under the AMLO is designed to capture intermediaries that arrange or execute VA transactions, including those not operat - ing order book platforms. After consultation, the FSTB and the SFC decided to align the definition of “dealing in virtual assets” closely with Type 1 “dealing in secu - rities” under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong), focusing on making or offering to make agreements, or inducing agreements, for acquisition, disposal, subscription for or underwriting of VAs. This activity-based approach means that payment- service providers, brokers, OTC desks and other intermediaries can all fall within scope if they oper - ate “by way of business” and undertake VA dealing, even where VA transfers are incidental to cross-border payments. Activities in VA referencing derivatives and structured products will generally remain under the SFO Types 1 (dealing in securities), 2 (dealing in futures contracts) and 11 (dealing in OTC derivative products or advising on OTC derivative products) regimes, and the definition avoids duplication by removing an earlier limb that would have overlapped with those products. For VA dealing service providers, the SFC will adopt regulatory requirements broadly consistent with
Type 1 intermediaries, including financial resources requirements. The conclusion paper confirms baseline capital of HKD5 million in paid-up share capital and minimum-required liquid capital of up to HKD3 million depending on the business model, with the scope for the SFC to impose additional buffers such as excess liquid capital equivalent to 12-months’ operating expenses where warranted. A central policy choice is that VA dealing service pro - viders will be required to place client VAs with SFC- regulated VA custodian service providers, at least in the early years of the regime. Although some respond - ents favoured allowing overseas-regulated custodi - ans in jurisdictions meeting the standards of the Basel Committee on Banking Supervision or International Organization of Securities Commissions, the authori - ties have reservations about enforceability and over - sight and prefer initially to anchor custody onshore for investor protection reasons. Recognising that VA liquidity is fragmented global - ly, the conclusion paper supports allowing licensed VA dealers to access non-SFC-licensed VATPs and overseas liquidity providers, subject to stringent safe - guards. These include robust due diligence on regu - latory status, financial soundness and anti-money laundering and counter-terrorist financing controls, as well as enhanced disclosure of cross-border risks to clients. The SFC links this to its ASPIRe “Access” pillar and to the separate circular that already allows SFC- licensed VATPs to share order books with intra-group platforms, illustrating a broader direction of controlled integration with global liquidity pools. However, settle - ment, custody and client asset protection must remain compliant with Hong Kong’s requirements, including the use of SFC-regulated VA custodians for client assets held by dealers. VA advisory and management regimes – completing the VA value chain Section B of the dealing conclusion paper sets out fur - ther consultation proposals for new licensing regimes for VA advisory service providers and VA management service providers under the AMLO. The authorities have recognised that some advisers and asset man -
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