20 January 2025

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Hong Kong Introduces Streamlined Licensing Framework for Virtual Asset Trading Platforms

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The Securities and Futures Commission (the “SFC”) of Hong Kong has announced a streamlined licensing framework for virtual asset trading platforms (“VATPs”), marking a pivotal development in the region’s evolving regulatory approach to digital assets.

 

Under the new framework, the SFC has replaced its previous two-phase assessment process with a single, comprehensive external evaluation. VATP applicants are now required to fully implement their operational infrastructure before the assessment begins, with the SFC playing an active role in the evaluation.

 

The revised framework seeks to address prior criticisms regarding regulatory complexity and slow processing times. Key innovations include:

 

1.  Direct SFC Engagement: The SFC will actively participate in the evaluation process, working alongside platform operators and external assessors to streamline compliance.

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2.  Practical Evaluation Requirements: Platforms must deploy all systems and controls before undergoing an external assessment, ensuring a more effective evaluation of operational readiness.

 

This change follows the SFC’s decision on 1 June 2024, to permit retail clients to trade cryptocurrencies, provided platforms comply with stringent operational and governance standards. While the decision was praised as a significant step forward, industry stakeholders previously expressed concerns over the burdensome nature of the application process, which led several major operators, such as OKX and Bybit, to withdraw their applications.

 

David Cameron Law Office (DCLO) has already fielded numerous inquiries from clients interested in exploring the benefits of this regulatory development. Many see the streamlined licensing framework as a promising opportunity to enter or expand their presence in Hong Kong’s evolving virtual asset market.

 

The SFC’s proactive stance is consistent with Hong Kong’s broader ambition to solidify its position as a global hub for virtual assets. The recent licensing of four VATPs in December 2024 underscores this commitment. This development represents a notable shift in Hong Kong’s regulatory strategy, balancing investor protection with the need to foster innovation in the virtual asset sector. For firms considering entry into the Hong Kong market, the revised licensing framework presents both an opportunity and a call to align with the region’s evolving regulatory standards.

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