Hong Kong Crypto Regulations in 2024

In Hong Kong, cryptocurrencies enjoy a clear legal standing. Regulations govern it to combine consumer protection with innovation. But in Hong Kong, crypto is not accepted as legal tender. They are regarded as virtual assets (VAs) instead. Following the September 2023 JPEX crisis, Hong Kong increased efforts to enhance investor education and disclosure.

Hong Kong is proactively integrating the cryptocurrency sector into its financial system to ensure safety. It has the potential to lead the Asia-Pacific region as a powerhouse for digital assets.

• On 7 December 2022, the Hong Kong Legislative Council passed the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022, which establishes a licensing system for virtual asset service providers.
• The SFC announced new rules for virtual asset trading platforms (VATPs) on May 31, 2023. These rules go into effect on June 1 of that same year. These rules are governed by the Securities and Futures Act (SFO) and the Anti-Money Laundering and Terrorist Financing Law (AMLO). Also, SFC issued a circular on the transitional arrangements for existing VAT under the new licensing regime, which requires such entities to be registered in Hong Kong, have a verifiable physical presence in the country, and have a true business presence in the region.
• June 1, 2023 – The Cryptocurrency Travel Rule comes into effect in Hong Kong. All transfers of Virtual Assets worth more than HK$8,000 (US$1,000) are subject to the terms of this rule. As of June 2023, cryptocurrency trading platforms need an SFC license to operate in Hong Kong. This ensures they adhere to strict asset custody, KYC measures, and AML/CFT laws.
• In February 2024, the HKMA issued new guidelines for digital asset custodians. These measures include stronger governance and risk management, segregation of assets from firm funds, protection of assets from fraud, and prohibition of outsourcing of custody functions outside the jurisdiction of the SFC. Custodians must keep transparent disclosures and comprehensive records while following strict AML and KYC regulations. The Hong Kong government has announced plans to establish licensing standards for stablecoin issuance and over-the-counter (OTC) cryptocurrency trading. Financial Services Minister Christopher Hoey highlighted the move in response to questions from the Legislative Council, stressing the need for stronger regulation.
• In March 2024, the HKMA established a regulatory sandbox to facilitate the creation and issuance of stablecoins. Businesses must demonstrate genuine interest, have a strong plan, and follow legal standards to join. ZA Bank leads and researches the use of stablecoins in various markets. The move puts Hong Kong ahead of many other major economies in regulating stablecoins, demonstrating its commitment to a diverse and innovative cryptocurrency economy. Hong Kong has also launched six bitcoin and ether ETFs, the first in Asia to allow retail trading at spot prices. ETFs issued by China Asset Management, Bocera Asset Management, and Harvest Global Investments aim to position Hong Kong as a leading hub for digital assets. The launch is seen as a strategic move to position Hong Kong as a digital assets hub ahead of Singapore and Dubai.
• From June 1, the Hong Kong SFCl requires all virtual asset trading platforms (VATPs) to be licensed to operate or sell to investors. The purpose of the regulations is to increase investor protection and market integrity. As of today, the license has been granted to OSL Digital Securities Limited. And Hash Blockchain Ltd. Only 17 other applications are pending. It is a crime to operate without a license, which has led to several exchanges such as OKX and Gate.hk to cease operations in Hong Kong.