Hong Kong amends AML regulations to include VASP

One of the amendments to AMLO involves the introduction of a licensing regime for virtual assets service providers (VASP). Originally, the licencing regime was scheduled to go into effect on 1 March 2023, but a circular issued by the Hong Kong Monetary Authority moved the date to June 1, 2023 in order to provide more preparation time. 

Virtual asset service providers are defined by the Financial Action Task Force (FATF) as any natural or legal person who, as a business, conducts the following operations or activities:

• Participates in and provisions financial services related to an issuer’s offer and/or sale of a virtual asset for or on behalf of another natural or legal person.
• Provides virtual asset custody on behalf of clients or provides a platform that enables users to store virtual assets.
• Exchanges between virtual assets and fiat.
• Exchanges between one or more forms of virtual assets.
• Transfers virtual assets.

The state of crypto adoption and regulation in Hong Kong 

In October 2022, the Hong Kong government and the SFC have taken steps to legalise retail cryptocurrency trades in order to restore the city’s reputation as a fintech hub. Previously, the city proposed limiting crypto trade to professional investors, which caused several startups to move their operations to other markets such as Dubai and Singapore. Since the Hong Kong government has reconsidered its stance, authorities could begin a consultation process that would give retail investors a certain degree of access to virtual assets. 

According to  cointelegraph.com, Hong Kong has been actively working toward building a regulatory groundwork for the crypto market. A policy proposing a regulatory framework and risk-based regulatory direction was published by the Hong Kong government under the title Policy Declaration on the Development of Virtual Assets. The government has suggested several pilot projects to evaluate and improve the technologies underlying virtual assets.

According to the same source, representatives from the Hong Kong Monetary Authority discussed the innovations and benefits of blockchain technology and its impact on central banks during a Thailand conference on 2 December 2022. Regarding CBDCs and stablecoins, they were acknowledged to offer a more efficient and cost-effective way of transactions. However, the same officials noted that, since blockchain is decentralised by nature, mitigating on-chain risks can be complicated, which is why regulators should focus on off-chain activities.