In our earlier article (click on right here), now we have reported on the graduation of the general public session for the legislative proposal to reinforce anti-money laundering and counter-terrorist financing (“AML/CTF”) measures in Hong Kong. On 7 December 2022, the Laws Council lastly handed the Anti-Cash Laundering and CounterTerrorist Financing (Modification) Invoice 2022 (“Invoice”). The Invoice implements the suggestions set out by the Monetary Motion Process Drive and introduces modifications to the Anti-Cash Laundering and Terrorist Financing Ordinance (Cap. 615) (“AMLO”).

As acknowledged within the Authorities’s assertion printed on the identical date, the Invoice will improve Hong Kong’s AML/CTF rules and supply a extra complete safety for buyers in digital asset (“VA”) actions, strengthening Hong Kong’s standing as a world monetary heart.

Particularly, we want to draw readers’ consideration to 2 main modifications launched by the Invoice, specifically, the introduction of the licensing regime for digital asset service suppliers (“VASPs”) and registration regime for sellers in valuable metals and stones (“DPMS”).

Key Amendments to the AMLO

(1) Licensing regime for VASPs

Below the regime, VASPs are required to use for a licence from the Securities and Futures Fee (“SFC”), and candidates in addition to their accountable officers should fulfill the match and correct take a look at. It could be a prison offence to hold on a enterprise of offering VA providers or if an individual holds itself as carrying on a enterprise of offering VA providers with out the required licence. 

(i) How is VA outlined?

Topic to sure exception set out within the Invoice, VA is outlined broadly as any cryptographically secured digital illustration of worth expressed as a unit of account or a retailer of financial worth which will be transferred, saved or traded electronically, both used as a medium of alternate accepted by the general public for fee of products or providers, discharge of debt, or funding functions, or confers holders with rights, eligibility or entry to vote on the administration, administration or governance of affairs regarding any cryptographically secured digital illustration of worth. Subsequently, it’s prone to cowl most (if not all) cryptocurrencies being traded available in the market, together with steady cash.

(ii) Whether or not non-fungible token (“NFT”) falls below the definition of VA?

The evaluation of whether or not an NFT is taken into account as a VA will rely on its nature and capabilities. An NFT will unlikely fall throughout the definition of VA if it merely represents a real digital illustration of a collectible. Nonetheless, an NFT could also be captured by the definition if it possesses sure traits (similar to fungible parts or permits holders to vote on its association) that don’t fall throughout the boundary of a collectible, and as such, a licence will probably be required to conduct actions in relation to such NFT.

(iii) Who’re thought of as VASPs? 

You will need to notice that the Invoice defines the operation of a VA alternate (i.e. VA service) as the availability of providers by way of technique of digital amenities the place (i) provides to promote or buy VA are often made or accepted, or individuals are often launched to one another with expectations that they’ll enter right into a binding transaction; and (ii) the place consumer cash or consumer VA comes into direct or oblique possession of the service supplier. Subsequently, it’s clear that automated buying and selling venues involving automated execution or matching of transactions, or the availability of centralized buying and selling providers could be thought of VASPs. Nonetheless, relying on the precise operations of the enterprise, the licensing regime might not apply to peer-to-peer transactions or over-the-counter transactions.

(iv) Ongoing obligations of licensed VASPs

Licensed VASPs are required to adjust to the AML/CTF necessities together with the necessities regarding buyer due diligence and record-keeping set out in Schedule 2 of the AMLO, and are anticipated to have measures in place to make sure protected custody of consumer belongings, keep monetary soundness of the corporate, and keep away from conflicts of curiosity. Licensed VASPs and their wholly-owned subsidiaries are required to submit audited accounts and monetary paperwork to the SFC frequently. The place needed, SFC might train its energy to enter the enterprise premises of VASP to conduct inspections and investigations. 

(v) Whether or not there are restrictions to offer providers to skilled buyers solely?

When the Invoice was initially launched, it was the meant that necessities be imposed to limit licensed VASPs’ provision of providers to skilled buyers solely. Nonetheless, that is now faraway from the Invoice itself as such restriction is meant to be imposed by the SFC as a part of the licensing situations with energy delegated below the AMLO. As acknowledged within the “Coverage Assertion on Growth of Digital Property in Hong Kong” printed by the Monetary Companies and the Treasury Bureau in October 2022, the SFC is planning to conduct a public session and think about how retail buyers might also be given an appropriate diploma of entry to VA. We will await the SFC to offer additional steering on this subject.

(2) Registration regime for DPMS

Individuals in search of to hold on a enterprise of dealing in valuable metals, valuable stones (whether or not pure or synthetic) and/or valuable merchandise, together with however not restricted to silver, gold, diamond, gems, jewelries and watches, in Hong Kong and have interaction in transactions at or above HK$120,000 are required to register with the Commissioner of Customs and Excise (“Commissioner”). Individuals who keep on such enterprise with out registration could also be liable to a most advantageous of HK$100,000 and six-month imprisonment. A two-tier registration regime will probably be carried out. Sellers intending to have interaction in non-cash transactions shall register as a Class A registrant, whereas sellers in search of to have interaction in money transactions shall register as a Class B registrant.

(i) Class A registrant 

The statutory necessities imposed on a Class A registrant are much less stringent and the registration course of is comparatively easy and simple. As a way to conduct the related commerce in Hong Kong, Class A registrants are solely required to carry a sound enterprise registration certificates issued by the Commissioner and make an annual fee for ongoing registration.

(ii) Class B registrant

In distinction, the statutory necessities imposed on a Class B registrant are extra onerous. Candidates (together with the applicant’s administrators and supreme homeowners if the applicant is an organization) are to bear the match and correct particular person take a look at. In contemplating whether or not to permit the registration, the Commissioner, will think about, amongst different issues, whether or not the applicant has beforehand been convicted of any AML/CTF offences in Hong Kong and outdoors Hong Kong, and whether or not the applicant is the topic of any chapter, winding up or liquidation proceedings.

As well as, profitable Class B registrants will probably be topic to AML/CTF supervision. Renewal of registration is required each 3 years and software should be made at the very least 60 days earlier than the date of expiry of the registration. 

When will the amendments come into impact?

The amendments will probably be launched in phases. The amended AMLO together with the registration regime for DPMS will come into operation on 1 April 2023, whereas the licensing regime for VASP and different amendments on AML/CTF necessities will take impact on 1 June 2023. As a way to permit candidates to use for the related licenses, transitional intervals and preparations will probably be supplied below the regimes. Within the meantime, industries involved shall put together themselves for the brand new regulatory necessities.