Hong Kong Crypto license

Cryptocurrency Licence in Hong Kong In recent years, the global cryptocurrency landscape has seen significant growth and innovation. As jurisdictions around the world grapple with how to regulate this burgeoning industry, Hong Kong has emerged as a promising destination for crypto entrepreneurs and businesses. Obtaining a crypto license in Hong Kong can open doors to a well-regulated and business-friendly environment. We will explore the steps and considerations involved in acquiring a crypto license in the vibrant financial hub of Asia.

Hong Kong crypto license

Benefits of Obtaining a Crypto License in Hong Kong

  1. Credibility and Trust: A crypto license from Hong Kong’s regulatory authorities adds credibility to your business, fostering trust among clients and investors.
  2. Access to a Robust Financial Ecosystem: Hong Kong offers a well-established financial infrastructure, providing businesses with access to a diverse range of financial services and markets.
  3. Global Recognition: Hong Kong’s regulatory framework is designed to align with international standards, making it easier for businesses to gain global recognition and operate in other jurisdictions.

Understanding the Regulatory Landscape

Hong Kong has taken a proactive approach to cryptocurrency regulation, aiming to strike a balance between fostering innovation and ensuring consumer protection. The regulatory framework for cryptocurrencies is overseen by the Securities and Futures Ordinance (SFO) and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). The Securities and Futures Commission (SFC) plays a crucial role in overseeing crypto-related activities.

Hong Kong

capital

Capital

population

Population

currency

Currency

gdp

GDP

Hong Kong 7,400,000 Hong Kong Dollar 369,2 billion

Types of Crypto Licenses

In Hong Kong, there are two main types of licenses that businesses engaged in cryptocurrency activities may need to obtain:

  • Type 1 License (Dealing in Securities): If your crypto business involves dealing with securities, such as security tokens, you will need to apply for a Type 1 License from the SFC.
  • Type 9 License (Asset Management): For businesses engaged in managing portfolios that invest in virtual assets, a Type 9 License is required.

The Application Process

The process of obtaining a crypto license in Hong Kong involves several key steps:

  • Preparation: Before applying for a license, ensure that your business operations comply with Hong Kong’s regulatory requirements. This includes implementing robust anti-money laundering (AML) and know your customer (KYC) procedures.
  • Engage with the SFC: Reach out to the SFC to discuss your business model and understand the specific requirements for your license application.
  • Submission of Application: Prepare a comprehensive application, including details about your business structure, financial stability, AML/KYC policies, and other relevant information. Submit the application to the SFC.
  • Review and Approval: The SFC will conduct a thorough review of your application, evaluating its compliance with regulatory standards. This process may take some time, and you may be required to provide additional information or address any concerns raised during the review.
  • Compliance Monitoring: Once approved, your business will be subject to ongoing compliance monitoring by the SFC. It is crucial to maintain a high standard of regulatory compliance to avoid any penalties or license revocation.

Navigating the process of obtaining a crypto license in Hong Kong requires careful planning, adherence to regulatory requirements, and ongoing commitment to compliance. As the crypto industry continues to evolve, Hong Kong’s forward-looking regulatory approach positions it as an attractive destination for businesses seeking a secure and regulated environment. By following the outlined steps and staying informed about regulatory developments, entrepreneurs can embark on a successful journey to establish and grow their crypto ventures in Hong Kong.

As per the most recent World Cryptocurrency Readiness Report, Hong Kong has emerged as the foremost hub for cryptocurrency activities in 2022, outpacing other nations across various metrics. This encompasses factors like the density of blockchain startups per 100,000 individuals and the prevalence of cryptocurrencies relative to the population. Notably, Hong Kong has outperformed countries like the U.S. and Switzerland in this ranking.

In its pursuit of becoming a global crypto center, Hong Kong has implemented specific measures to regulate the industry:

Since early 2018, the Hong Kong government has signaled its endorsement of blockchain technology. Over the past three years, the Innovation and Technology Fund (ITF) has allocated approximately $67.2 million to fund 18 projects associated with blockchain and distributed ledger technology.

In 2019, the Securities and Futures Commission (SFC) released guidelines for security token offerings (STOs) and virtual asset trading platforms (VATPs) to ensure adherence to existing regulations. Concurrently, the SFC introduced a regulatory framework for cryptocurrency exchanges.

Collaborating with government, academia, and industry, the Hong Kong Blockchain Society is actively promoting the legal development of blockchain through educational initiatives, research, and various activities and services within and around Hong Kong. Simultaneously, the Hong Kong Monetary Authority (HKMA) is exploring the integration of blockchain technology into its financial system. For instance, in May 2023, the HKMA initiated an e-HKD pilot program involving 16 companies selected to explore the application of digital currency across 14 projects.

It’s noteworthy that Hong Kong hosts several cryptocurrency exchanges, including BitMEX, OKEx, and Bitfinex.

Benefits of acquiring a cryptocurrency license in Hong Kong

Engaging in cryptocurrency activities in Hong Kong presents numerous advantages:

  1. Regulatory framework: Hong Kong has established a transparent regulatory framework for activities related to cryptocurrencies.
  2. Business-friendly atmosphere: Renowned for its business-friendly environment and robust legal system, Hong Kong facilitates the establishment of cryptocurrency-related businesses with clearly defined procedures and effective government support. Moreover, there is no capital gains tax on cryptocurrencies in Hong Kong.
  3. Capital access: As a global financial center, Hong Kong attracts a diverse array of investors and venture capitalists. Obtaining a cryptocurrency license in Hong Kong opens doors to a vast pool of potential investors and funding opportunities, enabling businesses to secure the necessary capital for growth and development.
  4. Reputation and credibility: Acquiring a cryptocurrency license in Hong Kong enhances the credibility and trustworthiness of a business, making it more appealing to institutional investors and potential partners. Hong Kong’s robust regulatory structure and adherence to international standards contribute to its esteemed reputation in the global cryptocurrency community.
  5. Ecosystem support: Hong Kong boasts a lively cryptocurrency community, featuring numerous startups, industry events, and networking opportunities. Additionally, specialized associations and incubators in the blockchain industry complement the ecosystem, fostering collaboration and innovation.
  6. International market access: Serving as a gateway to both Asian and global markets, Hong Kong offers established relationships, ease of doing business, and a resilient infrastructure. Businesses holding a cryptocurrency license in Hong Kong can expand beyond the local market and attract an international customer base.

The combination of these advantages positions Hong Kong as an appealing destination for businesses seeking to operate in the cryptocurrency industry and capitalize on the opportunities available.

Requirements for Acquiring a Cryptocurrency License in Hong Kong

Until recently, the government authorities in Hong Kong maintained a neutral stance regarding the licensing of cryptocurrency exchanges within the country. However, with the recent amendments to the Anti-Money Laundering and Counter-Terrorist Financing Act, enacted in December 2022, new regulations governing cryptocurrency activities in Hong Kong came into effect on April 1, 2023. As per these regulations, all virtual asset service providers (VASPs) are obligated to obtain a cryptocurrency license from the Securities and Futures Commission (SFC) to engage in legal cryptocurrency activities.

Individuals or companies lacking this license are prohibited from:

  • Conducting a business that offers any virtual asset services (VA).
  • Representing themselves as businesses providing VA services.
  • Performing regulated functions for businesses providing VA services.
  • Presenting themselves as individuals performing such regulated functions.
  • Advertising VA services.

The Hong Kong Securities and Futures Commission (SFC) commenced the acceptance of applications for cryptocurrency trading platform licenses on June 1, 2023.

As outlined in the decree, VA services, when conducted electronically, include:

  1. Regularly making offers to sell or buy virtual assets resulting in a binding transaction.
  2. Regularly introducing or identifying persons to others to negotiate or transact sales or purchases of virtual assets resulting in a binding transaction.
  3. Handling client money or client virtual assets that come into the direct or indirect possession of the service provider.

Cryptocurrency trading platforms facilitating the trading of financial products (securities and futures contracts) are exempt from the new licensing system, as they are already regulated under the Securities and Futures Ordinance (SFO).

It’s crucial to emphasize that the new licensing system is applicable to all cryptocurrency exchanges registered in Hong Kong under the Companies Ordinance (Chapter 622). This includes exchanges operating outside of Hong Kong but actively attracting Hong Kong citizens.

To secure a license in Hong Kong, the applicant is required to:

1.Clearly express the intention to offer services in the Hong Kong market.

2.Successfully pass a fit and proper test, which involves verifying:

  • The absence of any criminal record.
  • The history of anti-money laundering/counter-terrorist financing (AML/CFT) activities.
  • Financial situation.
  • Educational background or other qualifications.
  • The individual’s reputation, experience, character, reliability, and financial integrity.

3.Specify in the application at least two individuals considered suitable and qualified to undertake virtual asset (VA) services, applying for the position of responsible officers.

4.Apply for approval of the premises designated for the storage of records or documents mandated under the Regulation.

The Securities and Futures Commission (SFC) retains the authority to impose conditions on the granted license, encompassing aspects such as risk management, AML/CFT measures, financial resources, cybersecurity, and others, as outlined in Section 53ZRK of the Regulation.

The application must be submitted to the Commission following established procedures and accompanied by the requisite fees.

Our consultants are available to furnish additional information about the process and timeline for obtaining a cryptocurrency license in Hong Kong. Feel free to reach out for further assistance.

The director and beneficial owner are subject to the “compliance test,” which entails the following criteria:

  • No convictions for financial and related crimes.
  • No convictions for international crimes.
  • No convictions for money laundering and terrorism financing crimes.
  • No bankruptcy status, and no ongoing liquidation procedures against them.

To initiate the application process, a comprehensive documentation package must be submitted, including:

  • Description of the anticipated business activity, outlining its specificities and operational methods.
  • Information about the legal entity acting as the applicant.
  • Details on company officers, encompassing passport data, residential address, educational background, and relevant work experience.
  • Information about employees already hired for the prospective business activity.

Additionally, the following documents must be included:

  • Copies of the foreign passports of the director and beneficial owner.
  • An authorization letter.
  • A commitment declaration confirming compliance with the specified criteria. If the director or beneficial owner is a legal entity, incorporation documents, a certificate of incorporation, and a completed declaration are necessary.

FREQUENTLY ASKED QUESTIONS

Certainly, in Hong Kong, cryptocurrency falls under the regulation of the Anti-Money Laundering and Counter-Terrorist Financing Act, as amended in 2022. The Securities and Futures Ordinance (SFO) and other regulations oversee securities, futures contracts, and stored value objects.

In Hong Kong, bitcoin and other decentralized cryptocurrencies are categorized as "virtual commodities" and are not recognized as legal tender. Consequently, investors in Hong Kong engaged in buying and selling cryptocurrencies are not obligated to pay capital gains tax.

However, if crypto-assets are traded as part of the "ordinary course of business," they are treated as income and subject to income tax. Individuals are subject to income tax at a rate of up to 16.5%, and legal entities are subject to income tax at a rate of 15%. Notably, Hong Kong adheres to the territorial principle of taxation, meaning income tax is applicable only if the business is conducted in Hong Kong, and profits are derived from activities within Hong Kong. Income generated outside of Hong Kong is not taxable.

Concerning taxes related to Initial Coin Offerings (ICOs), the taxation treatment depends on whether the ICO is considered an offering of securities (e.g., providing investors with voting rights) or as a futures or contract for services/goods that offer a future benefit to purchasers.

For more details on the taxation of crypto businesses in Hong Kong, our consultants can provide further information.

Absolutely, cryptocurrency trading is allowed in Hong Kong. There are cryptocurrency exchanges and platforms that enable users to buy, sell, and exchange various cryptocurrencies.

Significant fines and criminal penalties await those violating cryptocurrency licensing requirements in Hong Kong. Operating without a license can result in fines of up to HK$5,000,000 ($640,000), and company management could face up to seven years in prison.

Failure to comply with established anti-money laundering and counter-terrorist financing (AML/CTF) requirements by a licensed Virtual Asset Service Provider (VASP) and its responsible employees could lead to a fine of HK$1,000,000 (US$128,000) and a two-year prison term if convicted on indictment. Additionally, disciplinary actions such as suspension or revocation of a license, reprimand, corrective action, and monetary fines may be imposed.

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