Public Consultation on Legislative Proposals for Regulate Over-the-Counter Virtual Asset Trading
Release Date: 2024-04-12
Hong Kong, 2 Tim Mei Avenue, Tamar
24th Floor, Central Government Offices
Email: vaotc-consult@fstb.gov.hk
Financial Services and the Treasury Bureau, Financial Services Branch, Group 5
April 12, 2024
To: Financial Services and the Treasury Bureau, Financial Services Branch, Group 5
Subject: Public Consultation on Legislative Proposals for Regulate Over-the-Counter Virtual Asset Trading
Regarding the public consultation on legislative proposals for regulate over-the-counter of virtual asset trading, the Hong Kong Securities and Futures Professionals Association provides the following feedback:
Question 1: Do you agree that the regulation of VA activities should be widened to cover OTC trading of VA?
Response: Yes. Since the Securities and Futures Commission (SFC) began regulating virtual assets in 2019, the primary focus has been on investment activities such as exchanges, asset management, and brokerage transactions. However, activities like OTC trading and cryptocurrency ATMs remain in a legal gray area, necessitating urgent legislative oversight to safeguard investors and the public.
Question 2: Do you agree that we should observe the “same activity, same risks, same regulation” principle in drawing up a new regulatory framework for VA OTC services, incorporating AML/CTF requirements in accordance with international standards while ensuring sufficient investor protection?
Response: Virtual asset OTC trading involves transactions between virtual assets and money, similar to SFC-regulated activities. Thus, it should be regulated under the SFC's Securities and Futures Ordinance and the Anti-Money Laundering Ordinance, following the principle of "same business, same risk, same rules."
Question 3: Do you agree with the proposed scope and format of VA OTC services to be regulated and that operators of VA OTC services who provide temporary custody/escrow service as part of the transaction process should be brought within the regulatory remit?
Response: Yes, operators providing custody/temporary storage services go beyond matching buyers and sellers, assuming increased responsibility and potential risk. Regulation is necessary to protect investors, ensure market integrity, and prevent financial crime, thereby fostering user confidence and ensuring compliance with best practices.
Question 4: Do you agree that a licence applicant must have a local nexus and suitable premises/relevant local addresses for CCE’s effective supervision and monitoring?
Response: Yes, having a local address is essential for effective regulation and supervision.
Question 11: Do you agree that, for the purpose of protecting the investing public, persons without a VA OTC licence should not be allowed to actively market a regulated VA OTC service to the public of Hong Kong?
Response: Yes, legislation should prohibit this to protect investors. However, enforcement poses challenges, especially for online operations. Encouraging online platforms to apply for licenses and educating the public on using licensed operators is crucial.
Question 12: Do you agree that CCE should be provided with the proposed powers?
Response: No. The consultation paper suggests regulation by Customs based on the "same business" principle. However, virtual asset investment typically involves currency conversion to stablecoins before trading cryptocurrencies. Currently, the SFC licenses virtual asset trading, while stablecoins fall under the Monetary Authority, and virtual asset exchanges under Customs. This could lead to conflicts or regulatory gaps, especially considering the rapid industry growth.
The virtual asset industry is in its infancy, with a shortage of skilled personnel, affecting regulatory bodies. The SFC, despite being an early regulator, faces staffing challenges. Customs, not traditionally a financial regulator, lacks the necessary expertise and resources, already overseeing over 1,000 traditional currency exchanges. Adding virtual asset exchanges could strain resources.
Conclusion: A coordinated approach led by the Financial Services and the Treasury Bureau is vital for the smooth implementation of the regulatory framework, ensuring effective oversight and fostering a conducive environment for virtual assets, stablecoins, and OTC activities.
Our association supports the Bureau's efforts to implement the regulatory framework effectively, promoting the growth of Hong Kong's digital finance ecosystem, while maintaining robust regulation.
For inquiries, please contact myself or Mr. Chan Wing Fung, Officer.
Best regards,
Mofiz Chan
Chairman
Hong Kong Securities and Futures Professionals Association
24th Floor, Central Government Offices
Email: vaotc-consult@fstb.gov.hk
Financial Services and the Treasury Bureau, Financial Services Branch, Group 5
April 12, 2024
To: Financial Services and the Treasury Bureau, Financial Services Branch, Group 5
Subject: Public Consultation on Legislative Proposals for Regulate Over-the-Counter Virtual Asset Trading
Regarding the public consultation on legislative proposals for regulate over-the-counter of virtual asset trading, the Hong Kong Securities and Futures Professionals Association provides the following feedback:
Question 1: Do you agree that the regulation of VA activities should be widened to cover OTC trading of VA?
Response: Yes. Since the Securities and Futures Commission (SFC) began regulating virtual assets in 2019, the primary focus has been on investment activities such as exchanges, asset management, and brokerage transactions. However, activities like OTC trading and cryptocurrency ATMs remain in a legal gray area, necessitating urgent legislative oversight to safeguard investors and the public.
Question 2: Do you agree that we should observe the “same activity, same risks, same regulation” principle in drawing up a new regulatory framework for VA OTC services, incorporating AML/CTF requirements in accordance with international standards while ensuring sufficient investor protection?
Response: Virtual asset OTC trading involves transactions between virtual assets and money, similar to SFC-regulated activities. Thus, it should be regulated under the SFC's Securities and Futures Ordinance and the Anti-Money Laundering Ordinance, following the principle of "same business, same risk, same rules."
Question 3: Do you agree with the proposed scope and format of VA OTC services to be regulated and that operators of VA OTC services who provide temporary custody/escrow service as part of the transaction process should be brought within the regulatory remit?
Response: Yes, operators providing custody/temporary storage services go beyond matching buyers and sellers, assuming increased responsibility and potential risk. Regulation is necessary to protect investors, ensure market integrity, and prevent financial crime, thereby fostering user confidence and ensuring compliance with best practices.
Question 4: Do you agree that a licence applicant must have a local nexus and suitable premises/relevant local addresses for CCE’s effective supervision and monitoring?
Response: Yes, having a local address is essential for effective regulation and supervision.
Question 11: Do you agree that, for the purpose of protecting the investing public, persons without a VA OTC licence should not be allowed to actively market a regulated VA OTC service to the public of Hong Kong?
Response: Yes, legislation should prohibit this to protect investors. However, enforcement poses challenges, especially for online operations. Encouraging online platforms to apply for licenses and educating the public on using licensed operators is crucial.
Question 12: Do you agree that CCE should be provided with the proposed powers?
Response: No. The consultation paper suggests regulation by Customs based on the "same business" principle. However, virtual asset investment typically involves currency conversion to stablecoins before trading cryptocurrencies. Currently, the SFC licenses virtual asset trading, while stablecoins fall under the Monetary Authority, and virtual asset exchanges under Customs. This could lead to conflicts or regulatory gaps, especially considering the rapid industry growth.
The virtual asset industry is in its infancy, with a shortage of skilled personnel, affecting regulatory bodies. The SFC, despite being an early regulator, faces staffing challenges. Customs, not traditionally a financial regulator, lacks the necessary expertise and resources, already overseeing over 1,000 traditional currency exchanges. Adding virtual asset exchanges could strain resources.
Conclusion: A coordinated approach led by the Financial Services and the Treasury Bureau is vital for the smooth implementation of the regulatory framework, ensuring effective oversight and fostering a conducive environment for virtual assets, stablecoins, and OTC activities.
Our association supports the Bureau's efforts to implement the regulatory framework effectively, promoting the growth of Hong Kong's digital finance ecosystem, while maintaining robust regulation.
For inquiries, please contact myself or Mr. Chan Wing Fung, Officer.
Best regards,
Mofiz Chan
Chairman
Hong Kong Securities and Futures Professionals Association