The SFC’s proactive measures to enhance VATP regulation and investor education demonstrate its commitment to addressing the evolving challenges and opportunities in the virtual asset trading space. By closing regulatory gaps, promoting transparency, and raising awareness, the SFC aims to safeguard investor interests and maintain market confidence in the dynamic landscape of digital finance and virtual assets.

The Securities and Futures Commission (SFC) is taking proactive steps to address concerns related to unregulated virtual asset trading platforms (VATPs) and to bolster investor education in response to the evolving landscape of digital finance and virtual asset (VA) activities.

The SFC acknowledges both the potential benefits and risks associated with these activities and is committed to ensuring the protection of investors’ interests and market confidence.

SFC closing regulatory gaps concerning VATPs

The SFC recognized the need to close regulatory gaps concerning VATPs and took action through the implementation of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO).

This new licensing regime, effective since June 1, 2023, empowers the SFC to regulate centralised VATPs more comprehensively. Licensed VATPs are now subject to stringent governance measures, including asset custody, market manipulation prevention, and conflict of interest avoidance, aimed at safeguarding investors.

To serve retail investors under the new regime, SFC-licensed VATPs must adhere to strict requirements, such as suitability assessments during onboarding, enhanced token due diligence, and transparent disclosures.

VATP lists, public awareness, intelligence, and enforcement

The SFC has been actively monitoring VA activities in Hong Kong, utilizing various sources of information, including market news, media reports, industry dialogues, complaints, and social media. In response to identified risks, the SFC maintains an Alert List and collaborates with the police when necessary. The Investor and Financial Education Council (IFEC) works alongside the SFC to educate and caution investors regarding the risks associated with unregulated platforms.

The recent JPEX incident underscored the dangers of dealing with unregulated VATPs and emphasized the importance of proper regulation in maintaining market confidence. In light of these concerns, the SFC is implementing several measures:

1. Publication of VATP Lists

List of Licensed VATPs

List of Closing-Down VATPs: These are VATPs legally required to close within a specified timeframe.

List of Deemed Licensed VATPs: Platforms deemed licensed as of June 1, 2024 (Note 1).

List of VATP Applicants: Providing information on applicants in response to public demand.

2. Dedicated List of Suspicious VATPs

To facilitate the identification of suspicious VATPs operating in Hong Kong and enhance investor awareness, the SFC will issue a dedicated list prominently displayed on its website. This list will be easily accessible and continually updated to ensure transparency.

3. Public Awareness Campaign

The SFC and IFEC are launching a public awareness campaign to educate the public about guarding against fraud and the risks associated with VAs and potential fraud. This campaign will employ various mediums, including mass media, social media, and educational talks.

4. Strengthened Intelligence Gathering and Enforcement

The SFC will continue to gather intelligence on VA-related businesses within its statutory powers and take enforcement actions against suspicious VATPs violating the law. Cases warranting further investigation will be referred to the police. The SFC encourages the public to report suspicious activities through its Online Complaint Form, recognizing public complaints as valuable sources of intelligence.

5. Collaboration with Law Enforcement

The SFC will collaborate with the police to establish a dedicated channel for sharing information on suspicious VATP activities and breaches. This cooperation aims to investigate incidents like the JPEX case and bring wrongdoers to justice.

“Same business, same risks, same rules”

The SFC adheres to the principle of “same business, same risks, same rules” and, in collaboration with the HKSAR Government, regularly reviews Hong Kong’s regulatory regime. Future measures may extend to the regulation of VA-related businesses beyond VATPs.

This approach underscores the commitment to protecting investor interests, fostering market confidence, and promoting responsible development within Hong Kong’s Web3 ecosystem through properly regulated service providers.

The SFC’s proactive measures to enhance VATP regulation and investor education demonstrate its commitment to addressing the evolving challenges and opportunities in the virtual asset trading space. By closing regulatory gaps, promoting transparency, and raising awareness, the SFC aims to safeguard investor interests and maintain market confidence in the dynamic landscape of digital finance and virtual assets.