Author: Lawyer Wu Wenqian (Gilbert Ng) and Li Shufei (Chris Lee)
background
On the evening of May 31, 2023, the Hong Kong Securities Regulatory Commission issued a circular on the latest VATP license manual and transitional arrangements for the licensing system, making the final announcement for the VATP virtual asset trading platform license application on June 1.
Click to read: Circular on Transitional Arrangements for a New Licensing Regime for Virtual Asset Trading Platforms
Trading Platform Transition Arrangements
Non-security token trading platforms that have “operated real business and established a real business presence” in Hong Kong before June 1 can continue to operate within 12 months from June 1. Exchanges that start operating in Hong Kong after June 1 need to obtain a license from the Securities Regulatory Commission before they can operate, and there is no transition period. Considerations for "genuine business" and "genuine presence" include:
a. Whether the trading platform is a Hong Kong company;
b. Whether there is a Hong Kong office;
c. Whether the trading platform is managed and controlled by Hong Kong employees;
d. Whether the key personnel are permanently stationed in Hong Kong;
e. Whether there are independent customers in Hong Kong and the real transaction volume;
f. Other evidence that the platform is operating in Hong Kong.
Note that it is not enough to simply have a Hong Kong company registered, but the employees are not stationed in Hong Kong. And the employees need to have been stationed in Hong Kong before June 1. Transitional arrangements only apply to platforms that offer trading of non-security tokens, while there are no transitional arrangements for trading platforms of security tokens. That is, all securities trading platforms need to obtain a license from the China Securities Regulatory Commission before they can operate after June 1.
Exchanges with a transition period can be deemed to have been licensed from June 1, 2024 if they meet the following conditions:
a. Submit a complete license application to the SFC by February 29, 2024;
b. It can provide evidence that the exchange has complied with all licensing regulations and is satisfied by the SFC.
In addition, this transitional arrangement also includes "individuals in regulated functions", ie the functions of licensed representative (RO) and/or responsible officer (LR). Individuals who have performed relevant functions on the trading platform before June 1st can also have personal transitional arrangements, and within 12 months from June 1st, 2023 (in the case that RO and LR are not licensed) To continue working in the relevant function, meaning to continue working as an RO or LR. These ROs and LRs can be regarded as licensed ROs and LRs from June 1, 2024 if they meet the following conditions:
a. These ROs and LRs must submit a complete (individual) license application to the SFC by February 29, 2024.
b. These ROs and LRs must have performed the relevant functions of ROs and LRs in the exchange before June 1, 2023.
c. Can provide proof and be satisfied by the China Securities Regulatory Commission that these ROs and LRs have the ability to comply with the regulations of licensed exchanges.
It is worth noting that during the license application process, if the SFC finds that the application is incomplete or that there are any application problems that can be resolved, the SFC will return the application and allow the applicant to solve the problems instead of directly rejecting the application. Therefore, applicants who are qualified for the transition period should submit their applications as soon as possible, instead of submitting applications close to February 29, 2024, so as to have sufficient time to resolve the issues of the Securities Regulatory Commission.
As for the responsible personnel, since the CSRC believes that the exchange will not be a small-scale operation, it is suggested that the number of responsible personnel may need to be more than the basic requirement.
In addition, the China Securities Regulatory Commission recommends that VATP apply together with licenses 1 and 7, because the nature of security coins and functional coins changes at any time, and applying at the same time can ensure the smooth operation of the exchange. A combined application form is submitted for both licenses.
VATP License Manual Summary
The SFC’s definition of operating in Hong Kong is to see whether the exchange is “actively
marketing to the Hong Kong public". That is, if an exchange, regardless of whether its place of registration is in Hong Kong, targets the public in Hong Kong, then the exchange must obtain a license. This can include a variety of situations, for example: refers to frequent contact Hong Kong investors or the public and promote services to the Hong Kong public, conduct mass media programs targeting Hong Kong public investors, and conduct Internet activities targeting Hong Kong investors, etc. In determining whether the exchange "actively promotes" its When servicing, the SFC will take into account the overall nature of the business activity in question, including:
a. Whether the service has a detailed promotion plan;
b. Whether the service is widely publicized through direct marketing, such as advertising in the Hong Kong media, broadcasting or other online "marketing" technology (as opposed to passive means, such as obtaining the service in a "self-selection" form, which may Not part of active promotion)
c. Whether the promotion is carried out in a planned manner and whether it is carried out according to a plan or procedure, thereby showing that this is an ongoing service rather than a single promotional action;
d. Whether the service is targeted at the Hong Kong public, such as written in Chinese and denominated in Hong Kong dollars;
e. Whether the service is actively sought by the customer.
Additionally, any licensed exchange conducting business outside of Hong Kong will need to ensure full compliance with all local legal and regulatory requirements.
Licensed exchanges will be required to provide the SFC with monthly reports on business activities in a format to be specified by the SFC and provide all information requested by the SFC. The China Securities Regulatory Commission also has the right to ask the exchange about anything about the exchange, and the exchange must reply truthfully.
Licensed exchanges need to hire independent professional companies to conduct annual audits of their businesses, including compliance processes, systems, security, etc. The first audit report should be submitted within 18 months from the date of license approval.
All other services or businesses other than exchanges need to be approved by the China Securities Regulatory Commission, and licensed exchanges can only operate 1 centralized exchange.
Basic Requirements for License
The basic requirements of the license have been sorted out in many different articles before, so I will not repeat them here, and only remind special or important matters. All Directors, Licensed Representatives (RO), Responsible Officers (LR), Responsible Managers (MIC) and Ultimate Beneficial Owners (UBOs) must pass the SFC's "fit and proper" test. The relevant industry experience of RO, LR, and MIC should be experience in regulated activities in Hong Kong or other countries. Work experience in a non-compliant environment, if it is exempted from the license requirement, can also be accepted. If the fintech technology is related to the technology of the exchange platform, it can also be considered for acceptance. It is worth noting that at least one license holder The license representative should reside in Hong Kong.
The financial requirement is a paid-up share capital of HK$5 million, liquid assets of HK$3 million, plus 12 months of operating expenses. Therefore, the exchange needs to submit an estimate of operating expense income to the CSRC.
The trust company used to keep client assets shall not engage in any other business, and may only keep assets for clients alone.
There is no mandatory requirement that data centers and storage centers must be located in Hong Kong, but all data centers and storage centers used must be approved by the Securities Regulatory Commission.
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The launch of the New Deal: Interpretation of the "transitional arrangement" of Hong Kong's cryptocurrency platform
Author: Lawyer Wu Wenqian (Gilbert Ng) and Li Shufei (Chris Lee)
background
On the evening of May 31, 2023, the Hong Kong Securities Regulatory Commission issued a circular on the latest VATP license manual and transitional arrangements for the licensing system, making the final announcement for the VATP virtual asset trading platform license application on June 1.
Click to read: Circular on Transitional Arrangements for a New Licensing Regime for Virtual Asset Trading Platforms
Trading Platform Transition Arrangements
a. Whether the trading platform is a Hong Kong company;
b. Whether there is a Hong Kong office;
c. Whether the trading platform is managed and controlled by Hong Kong employees;
d. Whether the key personnel are permanently stationed in Hong Kong;
e. Whether there are independent customers in Hong Kong and the real transaction volume;
f. Other evidence that the platform is operating in Hong Kong.
Note that it is not enough to simply have a Hong Kong company registered, but the employees are not stationed in Hong Kong. And the employees need to have been stationed in Hong Kong before June 1. Transitional arrangements only apply to platforms that offer trading of non-security tokens, while there are no transitional arrangements for trading platforms of security tokens. That is, all securities trading platforms need to obtain a license from the China Securities Regulatory Commission before they can operate after June 1.
a. Submit a complete license application to the SFC by February 29, 2024;
b. It can provide evidence that the exchange has complied with all licensing regulations and is satisfied by the SFC.
a. These ROs and LRs must submit a complete (individual) license application to the SFC by February 29, 2024.
b. These ROs and LRs must have performed the relevant functions of ROs and LRs in the exchange before June 1, 2023.
c. Can provide proof and be satisfied by the China Securities Regulatory Commission that these ROs and LRs have the ability to comply with the regulations of licensed exchanges.
It is worth noting that during the license application process, if the SFC finds that the application is incomplete or that there are any application problems that can be resolved, the SFC will return the application and allow the applicant to solve the problems instead of directly rejecting the application. Therefore, applicants who are qualified for the transition period should submit their applications as soon as possible, instead of submitting applications close to February 29, 2024, so as to have sufficient time to resolve the issues of the Securities Regulatory Commission.
As for the responsible personnel, since the CSRC believes that the exchange will not be a small-scale operation, it is suggested that the number of responsible personnel may need to be more than the basic requirement.
In addition, the China Securities Regulatory Commission recommends that VATP apply together with licenses 1 and 7, because the nature of security coins and functional coins changes at any time, and applying at the same time can ensure the smooth operation of the exchange. A combined application form is submitted for both licenses.
VATP License Manual Summary
a. Whether the service has a detailed promotion plan;
b. Whether the service is widely publicized through direct marketing, such as advertising in the Hong Kong media, broadcasting or other online "marketing" technology (as opposed to passive means, such as obtaining the service in a "self-selection" form, which may Not part of active promotion)
c. Whether the promotion is carried out in a planned manner and whether it is carried out according to a plan or procedure, thereby showing that this is an ongoing service rather than a single promotional action;
d. Whether the service is targeted at the Hong Kong public, such as written in Chinese and denominated in Hong Kong dollars;
e. Whether the service is actively sought by the customer.
Additionally, any licensed exchange conducting business outside of Hong Kong will need to ensure full compliance with all local legal and regulatory requirements.
Licensed exchanges will be required to provide the SFC with monthly reports on business activities in a format to be specified by the SFC and provide all information requested by the SFC. The China Securities Regulatory Commission also has the right to ask the exchange about anything about the exchange, and the exchange must reply truthfully.
Licensed exchanges need to hire independent professional companies to conduct annual audits of their businesses, including compliance processes, systems, security, etc. The first audit report should be submitted within 18 months from the date of license approval.
All other services or businesses other than exchanges need to be approved by the China Securities Regulatory Commission, and licensed exchanges can only operate 1 centralized exchange.
Basic Requirements for License
The basic requirements of the license have been sorted out in many different articles before, so I will not repeat them here, and only remind special or important matters. All Directors, Licensed Representatives (RO), Responsible Officers (LR), Responsible Managers (MIC) and Ultimate Beneficial Owners (UBOs) must pass the SFC's "fit and proper" test. The relevant industry experience of RO, LR, and MIC should be experience in regulated activities in Hong Kong or other countries. Work experience in a non-compliant environment, if it is exempted from the license requirement, can also be accepted. If the fintech technology is related to the technology of the exchange platform, it can also be considered for acceptance. It is worth noting that at least one license holder The license representative should reside in Hong Kong.
The financial requirement is a paid-up share capital of HK$5 million, liquid assets of HK$3 million, plus 12 months of operating expenses. Therefore, the exchange needs to submit an estimate of operating expense income to the CSRC.
The trust company used to keep client assets shall not engage in any other business, and may only keep assets for clients alone.
There is no mandatory requirement that data centers and storage centers must be located in Hong Kong, but all data centers and storage centers used must be approved by the Securities Regulatory Commission.