Hong Kong’s Legislative Council has approved new amendments to its anti-money laundering (AML) and terrorist financing regime to include virtual asset service providers.
The new law will establish a new licensing system for virtual asset service providers that will take effect on June 1, 2023. The new amendment will subject crypto exchange service providers to the same rules followed by traditional financial institutions.
It means that virtual exchanges looking to open a business in Hong Kong must pass strict AML guidelines and investor protection laws before being granted a business license. Unlike other regulators around the world, Hong Kong used the FTX failure to address regulatory concerns related to centralized exchanges.
After the collapse of the FTX crypto exchange, regulators around the world faced public outrage for failing to protect retail investors. There is a growing demand to bring crypto exchanges and service providers under the law and subject them to stricter AML and investor protection requirements.
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At a recent conference, Hong Kong Monetary Authority CEO Eddie Yue hinted that regulations to protect investors could be coming to the country soon. Recent legislative reforms have prompted the country to become a first mover on the pressing issue of investor protection.
Hong Kong is actively working to establish a well-thought-out regulatory framework for the nascent crypto market. A policy that provides a regulatory framework and risk-based regulatory direction was published by the Hong Kong government in October titled ‘Policy Statement on the Development of Virtual Assets’. The government has suggested several pilot projects to assess and improve virtual assets.