This screenshot taken on March 17, 2023 shows the official website of the Securities and Futures Commission of Hong Kong.

Hong Kong’s Securities & Futures Commission (SFC) has cautioned investors to be vigilant as some unlicensed virtual asset trading platforms have been engaging in improper business practices that contravene regulations on crypto trading.    

According to a SFC statement on Monday, some unlicensed trading platforms falsely claim to have submitted license applications to the SFC, misleading investors into believing that the platforms comply with the SFC’s regulatory requirements.

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The securities regulator warned that such behavior violates the city’s Anti-Money Laundering and Counter-Terrorist Financing Ordinance, constituting an offense that may result in fines or imprisonment.

Meanwhile, even if the platforms eventually submit license applications to the SFC, their previous misrepresentation will be taken into consideration when evaluating the “fitness and properness” to be licensed.

The securities regulator warned that most platforms currently accessible to investors are unregulated, and the public can refer to the list on SFC’s official website, which includes all the virtual asset trading platforms that are approved to provide services to investors

The Hong Kong Special Administrative Region government issued a policy statement last October, taking a significant step towards the development of “a vibrant sector and ecosystem for virtual asset in Hong Kong”. 

With a new regulatory regime of virtual asset trading platforms having come into effect on June 1, all centralized crypto platforms promoting their services to Hong Kong investors or running in the city should be licensed and regulated by the SFC. 

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The new regime has also granted a one-year grace period for unlicensed firms that had a presence in Hong Kong’s virtual asset market before June 1 to continue their operations until the end of May 2024. However, they are required to obtain a license to sustain their virtual asset businesses in the city after the grace period.

But during the transitional period, some of the platforms have introduced new products or services through existing or newly established entities, such as virtual asset “deposits”, “savings” and “earnings” which “are not allowed under the new regime”.

The SFC noted that the past non-compliant activities of virtual asset trading platforms may impact the assessment of their license applications. But the regulatory body will also take into account whether the platforms have taken concrete measures to demonstrate their willingness to rectify non-compliant activities, including “gradually unwinding impermissible transactions in an orderly manner”.

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The securities regulator warned that most platforms currently accessible to investors are unregulated, and the public can refer to the list on SFC’s official website, which includes all the virtual asset trading platforms that are approved to provide services to investors. 

In addition, investors may face the risk of losing all the investments held on unregulated platforms if they cease operation, collapse, fall victim of hacker intrusion or experience any misappropriation of assets.  

The SFC so far has licensed two platforms – OSL Exchange and HashKey Exchange – in 2020 and 2022 respectively to provide virtual asset trading services to professional investors. On August 3, the regulator upgraded the two platforms’ licenses to allow them to expand the business scope to retail investors. 

Contact the writer at irisli@chinadailyhk.com