Crypto License in Hong Kong

1. Regulatory structure. Hong Kong has established a clear regulatory structure for cryptocurrency-related activities.
2. Business-friendly environment. Hong Kong is known for its business-friendly environment and robust legal system. Setting up a business related to cryptocurrency is relatively easy, with well-defined procedures and effective support from the government. There is also no capital gains tax on cryptocurrencies in Hong Kong.
3. Access to capital. Hong Kong is a global financial center with a diverse range of investors and venture capitalists. Getting a cryptocurrency license in Hong Kong provides access to a huge number of potential investors and funding opportunities, allowing businesses to secure the capital they need to grow and develop.
4. Reputation and credibility. Obtaining a cryptocurrency license in Hong Kong increases the credibility and trustworthiness of a business, which can attract institutional investors and partnerships. A strong regulatory structure and adherence to international standards contribute to Hong Kong's reputation in the global cryptocurrency community.
5. Ecosystem support. Hong Kong has a vibrant cryptocurrency community, with many startups, industry events, and networking opportunities. Associations and incubators specializing in the blockchain industry complement the ecosystem, fostering collaboration and innovation.
6. International access to markets. Hong Kong is a gateway to both Asian and global markets. With established relationships, ease of doing business, and robust infrastructure, companies with a cryptocurrency license in Hong Kong can expand beyond the local market and attract an international customer base.

These advantages combine to make Hong Kong an attractive destination for businesses looking to operate in the cryptocurrency industry and take advantage of the opportunities on offer.

Until recently, Hong Kong's government authorities took a neutral stance on licensing cryptocurrency exchanges in the country. However, according to the recent amendments to the Anti-Money Laundering and Counter-Terrorist Financing Act passed in December 2022, new regulations for cryptocurrency in Hong Kong came into force on April 1, 2023. According to them, all virtual asset service providers (VASPs) must obtain a crypto license from the Securities and Futures Commission (SFC) for legal cryptocurrency activities.

A person or company who has not obtained a license may not:

• conduct a business that provides any virtual asset services (VA);
• represent themselves as a business providing VA services;
• perform regulated functions for a business providing VA services;
• represent himself or herself as an individual performing such regulated functions;
• advertise VA services.

The Hong Kong Securities and Futures Commission (SFC) began accepting applications for cryptocurrency trading platform licenses on June 1, 2023.

According to the Decree, VA services include the following, while using electronic means:

• regularly making offers to sell or buy virtual assets resulting in a binding transaction;
• regularly introducing persons or identifying them to others to negotiate or transact sales or purchases of virtual assets resulting in a binding transaction;
• where client money or client virtual assets come into the direct or indirect possession of the provider of such services.

Cryptocurrency trading platforms that allow trading in financial products (securities and futures contracts) are not subject to the new licensing system, as they are already regulated under the Securities and Futures Ordinance (SFO).

It is important to note that the new licensing system applies to all cryptocurrency exchanges registered in Hong Kong under the Companies Ordinance (Chapter 622). This includes exchanges based outside of Hong Kong but actively attracting Hong Kong citizens.

To obtain a license in Hong Kong, the applicant must:

1. Express intention to provide services in the Hong Kong market.
2. Pass a fit and proper test, which includes verification of:
   • absence of any criminal record;
   • history of AML/CFT activities;
   • financial situation;
   • education or other qualifications;
   • the individual's reputation, experience, character, reliability, financial integrity, etc.
3. Specify in the application at least two individuals who are deemed suitable and qualified to perform VA services and are applying for the position of responsible officers.
4. Apply for approval of the premises to be used for the storage of records or documents required under the Regulation.

The Securities and Futures Commission (SFC) may impose any conditions on the license granted, including conditions relating to risk management, AML/CFT, financial resources, cybersecurity, and others, as detailed in Section 53ZRK of the Regulation.

The application must be filed with the Commission per established procedures and accompanied by the appropriate fees.

Our consultants would be glad to provide you more information regarding the process and timeline for obtaining a crypto license in Hong Kong.