"Licenses and permits—what's the difference?" Many aspiring exchange operators find themselves tangled in regulatory jargon. This guide clarifies Hong Kong's licensing framework for virtual asset trading platforms.
Overview of Licensed Virtual Asset Trading Platforms in Hong Kong
As of October 2024, Hong Kong’s Securities and Futures Commission (SFC) recognizes three fully licensed virtual currency exchanges:
OSL Exchange
- Holds: Type 1 (Securities Trading) and Type 7 (Automated Trading Services) licenses
- Additional: Virtual Asset Trading Platform (VATP) Permit
HashKey Exchange
- Holds: Type 1, Type 7, and VATP Permit
- Parent company HashKey Group also holds Type 4 (Advising on Securities) and Type 9 (Asset Management) licenses for subsidiary operations.
HKVAX
- Newest entrant with Type 1 and Type 7 licenses (VATP Permit pending)
👉 Discover how top exchanges navigate compliance
Key Observations:
- Most platforms operate under temporary permits restricted to professional investors.
- Only fully licensed exchanges can serve retail investors and offer comprehensive services like custody.
- Non-compliance risks include enforcement actions under Hong Kong’s strict financial regulations.
Virtual Asset Trading Permits vs. Financial Licenses
Hong Kong mandates dual compliance for exchanges under:
Securities and Futures Ordinance (SFO)
- Covers security tokens traded via automated engines.
- Requires: Type 1 and Type 7 licenses.
Anti-Money Laundering Ordinance (AMLO)
- Governs non-security tokens.
- Requires: Virtual Asset Trading Platform (VATP) Permit.
Critical Insight: Exchanges handling both token types must secure all three approvals to avoid operational disruptions.
Hong Kong’s Financial License Ecosystem
| License Type | Scope | Relevance to Crypto Exchanges |
|---|---|---|
| Type 1 | Securities trading | Mandatory for security token trading |
| Type 4 | Investment advising | Needed for crypto advisory services |
| Type 7 | Automated trading | Core license for exchange platforms |
| Type 9 | Asset management | Allows virtual asset fund operations |
Strategic Considerations:
- Pure exchanges prioritize Type 1, Type 7, and VATP permits.
- Diversified firms (e.g., HashKey) add Type 4/9 for ancillary services.
- Traditional brokers (e.g., Tiger Brokers) expand into crypto via Type 1 upgrades.
FAQs: Hong Kong’s Crypto Licensing
Q1: Can I operate with just a VATP permit?
A: No. The permit covers AMLO compliance but lacks SFO authorization for security tokens—dual licensing is de facto required.
Q2: Does a Type 9 license substitute for Type 1/4?
A: Yes. Type 9 holders can trade securities and advise without separate Type 1/4 licenses, simplifying asset management operations.
Q2: How long does licensing take?
A: Typically 6–12 months, contingent on SFC review complexity and applicant preparedness.
👉 Learn about fast-tracking your license application
Final Checklist for Aspiring Exchange Operators
- Determine token types (security vs. non-security) to identify required licenses.
- Engage legal counsel for SFC/AMLO application drafting and submissions.
- Prepare for capital requirements (~HKD 5M net assets for Type 1/7).
- Implement AML/KYC systems to satisfy ongoing compliance audits.
Pro Tip: Early movers gain market share—Hong Kong’s crypto sector remains underpenetrated with just three full-service exchanges as of 2024.
Disclaimer: This article does not constitute legal advice. Consult professionals for jurisdiction-specific guidance.
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