DLT and cryptocurrencies
FinTechs belonging to this category offer financial services using crypto currencies. This category also includes FinTechs utilising blockchain and distributed ledger technologies (DLT) upon which Bitcoin and Ethereum are based, among others. FinTechs develop and do research in this field in order to create new services – e.g. crypto currency exchange markets, wallet providers, NFTs-related services, new payment services, "smart contracts" or new clearing and settling services.
Attitude of the country towards financial services using crypto currencies
Crypto currencies, or virtual assets, are increasingly seen as an alternative investment product or asset class, and Hong Kong has moved from monitoring crypto currencies trends to actively seeking to regulate crypto currency exchanges.
Enforcement actions have been taken where activities are seen to be in breach of Hong Kong’s laws. In 2018, Black Cell Technology Limited halted its initial coin offering ("ICO") and agreed to unwind transactions for Hong Kong investors following the SFC’s concerns that the ICO may have constituted a collective investment scheme.
Obligations and requirements to provide financial services using crypto currencies described above
The SFC has clarified that its regulatory regime includes stock tokens and Bitcoin futures. Stock tokens fall within the ambit of “securities” and marketing and/or distributing these tokens constitute “regulated activities” which require a licence. The SFC also recognises that there are unregulated crypto currency exchanges offering crypto currency futures contracts which expose investors to substantial risks and significant financial losses and has warned that Bitcoin futures fall within the definition of a “futures contract”.
A new regulatory framework for virtual asset service providers ("VASP") is expected to be introduced into Hong Kong’s legislative process in 2022. Intermediaries that engage in the business of operating a virtual asset exchange in Hong Kong, selling, or buying of crypto currencies, transferring, and exchanging crypto currencies and storage or management of virtual assets ("VA") as a part of their business will require a VASP licence from the SFC.
A licensed VA exchange will also be required to comply with the anti-money laundering and counter-terrorist financing requirements.
Prior to the promulgation of these new laws relating to VASPs, the SFC launched an “opt-in” regime in 2019. Under this regime, the SFC set up a regulatory sandbox to monitor virtual asset trading platform operators who were interested in obtaining a Type 1 (dealing in securities) or Type 7 (providing automated trading services) regulated activities licences.
Licensed asset managers in Hong Kong may manage portfolios that invest 10% or more of the gross asset value of their portfolios in virtual assets (irrespective of whether they amount to “securities” or “futures contracts” under the SFO) with no additional licensing conditions.
The SFC issued a circular in January 2022 allowing limited activities in virtual assets. SFC licensees who deal with virtual assets have to notify the SFC.
Additional comments regarding the legal situation for financial services using crypto currencies or what FinTech’s must be aware of in this business area
It has been discussed that that a new regulatory regime in relation to stablecoins may be introduced in 2023 or 2024.
Market size for financial services using crypto currencies and biggest companies in this business area
There is no publicly available information.
Additional comments regarding the economic situation for financial services using crypto currencies or what FinTech’s must be aware of in this business area