Hong Kong financial services firms gearing up to secure licenses from SFC

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After Hong Kong’s Legislative Council approved the amendment to the Anti-Money Laundering and Counter-Terrorist Financing Act, the region’s financial services firms have been scrambling to obtain licensing from the Securities and Futures Commission (SFC).

The amendment introduces new licensing requirements for operators, while retail and institutional investors have a new set of rules to guide their activities. Aside from giving the SFC wider regulatory powers, the new rules have piqued the interest of brokers and fund managers looking to offer virtual currency services to their clients.

“We have seen a lot of local brokers and fund managers seeking advice from us about the licensing requirements under the new regulatory regime,” Robert Lui, a leading executive at Deloitte Hong Kong, remarked.

Lui confirmed brokers looking to transition to offering digital assets to their customers will have to “show the SFC that they have internal controls.” Hong Kong’s securities watchdog has imposed stringent licensing processes, including separating customers’ funds and insurance in the event of unforeseen circumstances.

Victory Securities and Interactive Brokers have satisfied the requirements of the SFC to be the first brokerage firm allowed to trade digital assets. However, the SFC’s provision is reserved for only institutional investors with a capital of at least $1 million.

“Offering virtual assets trading to clients will give more product choices to our customers,” said Kennis Chan, director at GEM-listed Victory Securities. “We have seen many customers who are interested in investing in virtual assets.

The application of the new licensing requirement is expected to come into effect on June 1, but it needs to be clarified if the SFC plans to expand the rules for brokerage firms to include retail investors.

A clear statement of intent

Hong Kong’s incoming legislation clearly states that it is keen on transforming its digital economy. The government has previously indicated that it will not be toeing China’s path in imposing a blanket ban on digital currencies. Instead, it will be exploring options to attract foreign service providers.

With Julia Leung starting her tenure as the new chief executive of the SFC, local industry players are brimming with enthusiasm over positive reforms. Despite her interest in virtual assets, Leung’s speech at the Hong Kong FinTech Week in 2021 suggested that she is open to the idea of stricter regulations.

Since the implosions of Terra, Three Arrows Capital (3AC), Zipmex, and FTX, Hong Kong’s regulators have been mulling over tighter rules for the industry, but the pendulum appears to be swinging toward stimulating growth.

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