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HKMA to Permit Asset Managers to Offer Digital Asset Services

The Hong Kong Monetary Authority (HKMA) and the Hong Kong Securities and Futures Commission (SFC) issued a joint circular allowing registered institutions and licensed corporations to provide digital asset investment services by partnering exclusively with SFC-licensed virtual asset trading platforms.

As asset management firms continue to accelerate the adoption of dealing with digital assets, the joint announcement is critical in helping build competitive cryptocurrency markets in Hong Kong and further develop the acceptance of regulated virtual assets in Asia and the globe.

The circular’s clarity will increase the demand of digital assets in Hong Kong from licensed asset managers, brokers, banks, permitting these financial institutions to legally onboard customers into the quickly growing virtual asset space, according to a GlobalTrading source in the HKMA.

As market developments regarding virtual assets and virtual asset service providers (VASPs) are evolving rapidly, financial instructions intending to engage in virtual asset activities should discuss with the HKMA (and other regulators where appropriate) and obtain the HKMA’s feedback on the adequacy of the institution’s risk-management controls before launching relevant products or services, according to the circular.

If authorized financial institutions establish business relationships with VASPs (e.g. opening bank accounts), appropriate ML/TF risk assessments should be conducted in line with the risk-based approach to differentiate the risks of individual VASPs, recognising that VASPs may adopt widely differing business models and that there is no “one-size-fits-all”.

Depending on the nature of the relationship, authorized financial institution may need to undertake additional customer due diligence (CDD) measures like those for offering correspondent banking or similar services to financial institutions that enable the provision of products and services to concerned financial firms own customers

HKMAs regulatory approach towards virtual assets has been prudent. On 12 January 2022, the HKMA issued a Discussion Paper on Crypto-assets and Stablecoins, setting out its thinking on the regulatory approach for crypto-assets, particularly stablecoins, and seeking feedback from stakeholders.

In December 2020, the first license was granted by the SFC under the voluntary opt-in regime for platforms offering trading of securities-type virtual assets.