Introduction
Bitcoin and Ethereum remain the two highest-market-cap cryptocurrencies to date. Other popular cryptocurrencies with significant trading volume include:
- Binance Coin (BNB)
- XRP
- Solana (SOL)
- Cardano (ADA)
- Dogecoin (DOGE)
- Tron (TRX)
- Toncoin (TON)
- Stablecoins like USDT and USDC
Major cryptocurrency exchanges operating globally include Binance, Coinbase, Kraken, Bybit, and OKX. As these platforms expand into Hong Kong and Asian markets, understanding the regulatory framework becomes crucial.
Licensing for Cryptocurrency and Fintech Platforms
Current License Holders
Only two virtual asset trading platforms (VATPs) have received licensing from Hong Kong's Securities and Futures Commission (SFC) to date:
- OSL
- HashKey
Pending Applications
Seven platforms are currently undergoing the licensing process:
- BGE
- HKbitEX
- HKVAX
- VDX
- Meex
- PantherTrade
- OKX
- VAEX
New Market Entrants
Zodia Custody (a Standard Chartered subsidiary) announced plans in late 2023 to provide cryptocurrency custody services in Hong Kong.
VATP Licensing Requirements
Applicants must submit an external evaluation report covering eight critical areas:
| Evaluation Area | Key Focus Points |
|---|---|
| Governance & Staffing | Leadership structure, qualifications |
| Token Inclusion | Listing criteria, due diligence |
| Virtual Asset Custody | Storage solutions, security protocols |
| KYC Procedures | Identity verification processes |
| AML/CFT Measures | Transaction monitoring, reporting |
| Market Surveillance | Manipulation detection systems |
| Risk Management | Operational risk frameworks |
| Cybersecurity | Threat prevention, response plans |
Payment Licensing in Hong Kong (MSO License)
The Hong Kong Customs and Excise Department regulates Money Service Operator (MSO) licenses for:
- Currency exchange services
- Remittance services
Notable MSO License Holders:
- Airwallex
- Alipay
- Wise Payments
👉 Learn more about MSO compliance requirements
Important Clarification: While MSO licensing doesn't directly regulate cryptocurrencies, any business conducting money services (as defined by Customs) must obtain this license—regardless of cryptocurrency involvement.
Tokenization and Security Token Offerings (STOs)
Why STOs Are Gaining Popularity
- Faster capital raising compared to traditional markets
- Lower cost structure than conventional IPOs
- Eliminates complex stock exchange listing procedures
Hong Kong's Landmark 2023 Initiative
The Hong Kong Monetary Authority (HKMA) issued HK$800 million in tokenized green bonds—the first government-issued tokenized green bonds. The entire process occurred digitally via blockchain, including:
- Primary issuance
- Coupon payments
- Secondary market trading
- Settlement
- Maturity redemption
Legal Considerations for STOs
Issuers must evaluate:
- Whether tokens qualify as "securities" under the Securities and Futures Ordinance
- Prospectus requirements applicability
Common Structuring Approaches:
- Private offerings to professional investors
- Public offerings utilizing safe harbor provisions
SFC Guidelines on Tokenized Products
Key November 2023 reminders from the SFC:
- Pre-approval Requirement: All new tokenized investment products require SFC recognition and prior consultation
Distribution Rules:
- Distributors must be SFC-licensed
Must comply with:
- Client onboarding regulations
- Suitability assessments
For Intermediaries Handling Tokenized Securities:
Conduct thorough due diligence on:
- Issuers
- Third-party service providers
- Mandatory pre-discussion with assigned SFC case officers
Emerging Challenges: Crypto Scams and Asset Recovery
The SFC continues to:
- Introduce new virtual asset regulations
- Expose non-compliant platforms (e.g., JPEX case regarding false licensing claims)
- Address rising romance/Investment scams
👉 Essential guide to crypto asset protection
Legal Recourse Options:
- Court injunctions
- Targeted actions against fraudulent entities
- Asset recovery proceedings
FAQ Section
Q1: What's the difference between utility tokens and security tokens?
A: Utility tokens provide access to a product/service, while security tokens represent investment contracts and are subject to securities regulations.
Q2: How long does VATP licensing typically take?
A: The process generally takes 6-12 months, depending on application completeness and compliance readiness.
Q3: Can individuals participate in STOs?
A: It depends on the offering structure—some are restricted to professional investors, while others may be available to retail participants.
Q4: What happens if a platform operates without an MSO license?
A: The Hong Kong Customs Department may impose fines up to HK$100,000 and 6 months imprisonment for first offenses.
Q5: Are stablecoins regulated in Hong Kong?
A: Currently under review—the HKMA has proposed a regulatory framework expected to take effect by 2024-2025.
Q6: How does blockchain help in bond tokenization?
A: It enables faster settlement, 24/7 trading, fractional ownership, and automated compliance through smart contracts.
About the Author
David Cameron Law Office (DCLO)
John Smith (pseudonym) is a qualified lawyer in Hong Kong, England & Wales, and New York with over 15 years of financial markets experience. His practice focuses on:
- Financial regulation
- Virtual assets
- Cryptocurrency compliance
- Tokenization strategies
- Litigation and regulatory investigations