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Virtual Asset Regulation Hong Kong: AMLO Amendment Bill Explained
- Anna Lau
- Aug 24, 2022
- 5 min read
Virtual Asset Regulation Hong Kong has undergone significant development with the introduction of the Anti‑Money Laundering and Counter‑Terrorist Financing (Amendment) Bill 2022. The proposed framework establishes a licensing regime for Virtual Asset Service Providers and introduces regulatory clarity aimed at enhancing market integrity, investor protection, and compliance with international standards.
Introduction to the AMLO Amendment Bill
The Amendment Bill introduces a new licensing regime for Virtual Asset Service Providers (VASPs) and imposes statutory Anti‑Money Laundering and Counter‑Terrorist Financing (AML/CTF) regulations on them. Specifically, anyone who wishes to offer Virtual Asset (VA) services must apply for a licence from the Securities and Futures Commission (SFC). This licensing regime requires the applicant to satisfy specific licensing criteria such as the “fit‑and‑proper” test and undertaking to offer services to professional investors only.
On 6 July 2022, the Legislative Council passed the first reading of the Anti‑Money Laundering and Counter‑Terrorist Financing (Amendment) Bill 2022. Upon passing all three readings, the Amendment Bill will be incorporated into the existing Anti‑Money Laundering and Counter‑Terrorist Financing Ordinance (Cap.615). On 24 June 2022, the Legislative Council Brief was published to provide explanations to the proposed amendments.
What Are Virtual Assets and VA Services?
According to Section 53ZRA(1) of the Amendment Bill, Virtual Assets are defined as a cryptographically secured digital representation.
According to Schedule 3B, VA Service refers to operating a VA exchange, meaning:
Offers to sell or purchase virtual assets are regularly made or accepted and result in binding transactions; or
Persons are introduced or identified to facilitate negotiations or transactions; and
Client money or client virtual assets come into the possession of the service provider.
It is important to note that the definition primarily targets centralised exchanges. In the case of non‑fungible tokens (NFTs), peer‑to‑peer trading activities may not require a licence unless they fall within the definition of a VA service.
How Does One Obtain a VASP Licence?
One of the key requirements is that the applicant must be incorporated in Hong Kong or registered locally under the Companies Ordinance (Cap.622).
Applicants must satisfy the SFC’s fit‑and‑proper test under Section 129(1) of the Securities and Futures Ordinance (Cap.571), which considers:
financial status.
qualifications.
competence.
reputation.
Operating a VA service without a licence will constitute a criminal offence once the regime is in force.
Additional Criminal Offences Introduced
There are three additional criminal offences proposed under the Amendment Bill, namely the offence:
to issue advertisements relating to an unlicensed person’s provision of VA services, and a person who commits the offence is liable on conviction to a fine at level 5 (HK$50,000) and to imprisonment for 6 months.
involving fraudulent or deceptive devices in transactions in virtual assets, and a person who commits the offence is liable
on conviction on indictment to a fine of HK$10,000,000 and to imprisonment for 10 years, or
on summary conviction to a fine of HK$1,000,000 and to imprisonment for 3 years.
to fraudulently or recklessly induce others to invest in virtual assets, and a person who commits the offence is liable
on conviction on indictment to a fine of HK$1,000,000 and to imprisonment for 7 years, or
on summary conviction to a fine at level 6 and to imprisonment for 6 months.
These provisions are intended to strengthen market integrity and enhance protection against misconduct in virtual asset activities.
Market Impact of the Regulatory Framework
‘Cryptocurrencies’ or ‘Virtual Assets’, unless handled by professionals, is often met with confusion. The world of cryptocurrencies is developing in a highly volatile environment. In Hong Kong, the Hong Kong Monetary Authority categorised cryptocurrencies as tradable virtual assets, but not legal tender.
Historically, banks and legal institutions in Hong Kong have adopted a cautious approach towards digital assets. Global responses have varied, ranging from full adoption to outright prohibition.
The Amendment Bill is expected to align Hong Kong with international standards adopted in jurisdictions such as Singapore, the United Kingdom, and Japan, thereby enhancing regulatory consistency.
Investor Protection and Regulatory Purpose
One of the primary risks associated with virtual assets is the absence of a central intermediary, which may increase exposure to fraud and misconduct.
The Amendment Bill introduces a structured AML/CTF regulatory framework, aimed at:
reducing financial crime risks
protecting investors
strengthening market oversight
This aligns Hong Kong with Financial Action Task Force (FATF) obligations and international best practices.
Implications for Existing and Prospective VASPs
VASPs operating or intending to operate in Hong Kong must obtain a licence under the new regime.
Although a transitional period of up to nine months is proposed, the SFC may not process all applications immediately. During this period, existing operators who apply within the timeframe may be deemed licensed until a decision is made.
Given the breadth of the regime, businesses are encouraged to carefully assess whether their activities fall within the definition of a VA exchange and to seek appropriate legal guidance.
How Ravenscroft & Schmierer Can Help?
Ravenscroft & Schmierer advises businesses on the evolving Virtual Asset Regulation in Hong Kong, including compliance under the AMLO framework and licensing requirements for VASPs. The firm provides guidance on regulatory classification, business structuring, and risk assessment in digital asset activities. Organisations seeking clarification on the Amendment Bill and its implications may contact us.
FAQ: Virtual Asset Regulation Hong Kong
What is the AMLO Amendment Bill in Hong Kong?
It introduces a licensing regime for virtual asset service providers and strengthens AML and CTF regulations.
Who needs a VASP licence in Hong Kong?
Any entity operating a virtual asset exchange or providing VA services within the scope of the Amendment Bill.
Are NFTs regulated under the new regime?
NFT activities are only regulated if they fall within the definition of VA services, particularly where exchange functions are involved.
What is the fit and proper requirement?
Applicants must demonstrate financial soundness, competence, and integrity as required by the SFC.
What are the risks of operating without a licence?
Operating without a licence may lead to criminal liability, including fines and imprisonment.
How can Ravenscroft & Schmierer assist with virtual asset regulation?
Ravenscroft & Schmierer supports businesses in navigating licensing requirements, structuring operations, and ensuring regulatory compliance.
Why work with Ravenscroft & Schmierer on digital asset compliance?
Digital asset regulation requires careful alignment with evolving laws. Ravenscroft & Schmierer provides practical and commercially focused guidance to help businesses operate confidently within Hong Kong’s regulatory framework.
Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
For specific advice about your situation, please contact:
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+852 2388 3899
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