Bitcoin and cryptocurrencies defined as ‘virtual commodities’ in Hong Kong which in themselves are unregulated. Cryptocurrency exchange activity in Hong Kong is unregulated. However certain exchanges voluntarily register as Money Service Operators (MSO) for foreign exchange activities or remittance services using fiat money. Such companies are required to provide notices to the public to emphasize that they are not subject to regulation for their bitcoin trading activities.
Customs & Excise and HKMA have warned financial institutions handling bitcoin and cryptocurrency to be mindful of money laundering risks.
The Securities and Futures Commission (SFC) of HK has commented on Initial Coin Offerings (ICOs) taking place from HK. The SFC stated that “a virtual commodity is not of itself a security”. The SFC did provide further clarity over what types of ICOs may fall within the definition of a security offering. The characteristics were that of dividends, participation in the distribution of the assets upon winding up, debt instruments requiring repayment with interest, collective investments where funds are collected to be re-invested and shared with the investors.
Anyone seeking to establish themselves in HK to conduct virtual commodity trading should consider making contact with the Customs & Excise Department to inform them of the activities undertaken. The business model once scrutinised may not be subject to licensing. Regarding ICO activity all issuers should consider whether the digital token would be defined as a security based on the guidance provided by the SFC. Legal counsel and engagement with regulators is imperative to have a sure footing for your business. Lastly, the HKMA does not regulate virtual commodities under the Payment Systems and Stored Value Facilities Ordinance however may decide to define virtual commodities as a medium of exchange which would result in the requirement for Stored Value Licensing for virtual commodities exchange activity.
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