Licenses Required to Operate a Virtual Currency Exchange in Hong Kong

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In early October 2024, the Securities and Futures Commission (SFC) of Hong Kong updated its list of licensed virtual asset trading platforms, announcing HKVAX as the newest licensed exchange. This marks the third virtual currency exchange officially recognized by Hong Kong regulators, following OSL Exchange and HashKey Exchange.

According to reports from prominent local news outlets, HKVAX holds Type 1 (dealing in securities) and Type 7 (providing automated trading services) licenses issued by the SFC. The platform offers OTC brokerage services, virtual currency trading, and comprehensive virtual asset custody services to investors in Hong Kong.

A common question arises: what licenses are actually required to operate a compliant virtual currency exchange in Hong Kong? Is it sufficient to obtain a virtual asset trading platform (VATP) permission, or are Type 1 and Type 7 licenses mandatory? Are other exchanges following the same pattern? To answer these questions, let’s first examine the licensing status of current and applicant platforms.

Overview of Licensed Virtual Asset Trading Platforms in Hong Kong

Based on public records from the SFC, here is a summary of the licensing status of major virtual asset trading platforms operating in or applying to operate in Hong Kong:

It is important to note that platforms labeled as “deemed-to-be-licensed” are operating under a provisional status. These platforms are only permitted to offer virtual asset services under specific restrictions, primarily to professional investors. They are not allowed to serve retail investors, and their service scope is limited. For example, they cannot engage in margin trading, virtual asset derivatives trading (such as futures contracts), asset lending, or market-making activities.

From this list, we can observe that most virtual asset trading platforms have not yet obtained full SFC licenses. Instead, many have applied for or received VATP permissions under the deemed-to-be-licensed status. However, the three platforms that have obtained full VATP permission—OSL, HashKey Exchange, and HKVAX—all hold Type 1 and Type 7 licenses.

This leads to two important questions: What is the relationship between a VATP permission and a virtual asset (VA) license? Is it necessary to hold Type 1 and Type 7 licenses to obtain VATP permission?

Virtual Asset Trading Platform Permission vs. Financial Licenses

In Hong Kong, any centralized virtual asset trading platform that (1) is operating a business or (2) actively marketing its services to Hong Kong investors must be licensed and regulated by the SFC. This requirement stems from two key pieces of financial legislation:

1. The Securities and Futures Ordinance (SFO)

The regulatory regime under the SFO is designed to regulate centralized platforms that:

This regime involves licenses such as Type 1 (securities dealing) and Type 7 (automated trading services).

2. The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO)

The AMLO regulatory regime is designed to regulate centralized platforms that:

This regime involves the Virtual Asset Trading Platform (VATP) permission.

However, given that the nature of virtual assets can change—a token might transition from being a non-security token to a security token, or vice versa—the SFC recommends a cautious approach. Specifically, it advises that virtual asset trading platforms apply for licenses under both the SFO and AMLO regimes to avoid violating licensing requirements and ensure business continuity.

So what exactly do Type 1 and Type 7 licenses cover? Are other licenses needed to operate virtual asset-related businesses in Hong Kong? Why does HashKey also hold Type 4 and Type 9 licenses? To answer these, we need to understand the range of financial licenses available in Hong Kong.

Overview of Hong Kong Financial Licenses

Under the Securities and Futures Ordinance (SFO), Hong Kong’s financial market is divided into multiple regulated activities. Market participants must apply for the corresponding licenses based on the services they provide. The most common license types and their applicable businesses are:

With so many license types, a natural question arises: Do you need to apply for all of them if you want to operate a virtual currency business in Hong Kong? The answer is no.

Apply for Licenses Based on Your Business Activities

As previously detailed in industry analyses, virtual asset service providers (VASPs) encompass a variety of entities, including:

Accordingly, if you are operating a virtual asset trading business in Hong Kong, you will typically need to consider applying for Type 1, Type 4, Type 7, and/or Type 9 licenses, depending on your services:

If you only plan to operate a virtual currency exchange, besides the VATP permission, you generally need Type 1 and Type 7 licenses:

Traditional financial institutions looking to integrate virtual asset services—like Tiger Brokers and ZA Bank—have also applied for and obtained Type 1 licenses that include virtual asset trading permissions.

If your business involves providing investment advice related to virtual assets, you will need a Type 4 License. This applies to both companies and individuals, including influencers who share crypto investment tips and virtual currency investment advisors. Operating without this license can lead to regulatory issues.

For those aiming to manage investment portfolios that include virtual assets, a Type 9 License is mandatory. Some investment firms that already hold a Type 9 license can simply upgrade their existing license to include virtual assets like Bitcoin, Ethereum, and other cryptocurrencies and tokens. This allows for direct holdings or indirect investments through derivatives and other financial instruments.

Notably, a Type 9 licensed fund manager can conduct securities trading and provide advisory services without needing additional Type 1 or Type 4 licenses. This suggests that if you plan to operate a diversified business like HashKey Group—spanning trading, asset management, and advisory services—the most efficient path may be to apply for Type 7, Type 9, and VATP permissions.

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Frequently Asked Questions

What is the difference between a VATP permission and a financial license?
A VATP permission is granted under the AMLO and specifically allows the operation of a virtual asset trading platform. Financial licenses (e.g., Type 1, Type 7) are issued under the SFO and regulate specific financial activities. Many platforms need both to operate comprehensively and compliantly.

Can I serve retail investors with a deemed-to-be-licensed status?
No. Platforms with deemed-to-be-licensed status are only permitted to serve professional investors. They cannot offer services to retail investors and are restricted from providing high-risk activities like margin trading or derivatives.

How long does it take to get a virtual asset license in Hong Kong?
The processing time varies based on application complexity, completeness of documentation, and SFC review schedules. It typically takes several months to over a year. Professional legal assistance can help streamline the process.

Is a Type 9 license sufficient for managing virtual asset funds?
Yes, a Type 9 license allows you to manage portfolios containing virtual assets. It also permits securities trading and advising without separate Type 1 or Type 4 licenses, making it a versatile choice for asset managers.

Do I need a license to offer crypto investment advice in Hong Kong?
Yes, providing investment advice related to virtual assets that qualify as securities requires a Type 4 license. This applies to both organizations and individuals offering such services professionally.

What are the risks of operating without a license?
Operating without the required licenses can result in severe penalties, including fines, legal action, and forced cessation of business. It also damages reputation and trust among investors and partners.

Conclusion

As of October 2024, only three platforms are fully licensed to provide virtual asset trading services directly to investors in Hong Kong. Many traditional brokerages and financial institutions partner with these licensed platforms to offer virtual asset services indirectly to their users. This underscores the importance of obtaining the proper licenses early—those who do gain significant advantages and influence in Hong Kong’s growing virtual asset market.

Understanding the regulatory landscape and choosing the right licenses based on your business model is crucial for long-term success and compliance. Whether you are launching an exchange, offering advisory services, or managing assets, aligning your operations with SFC requirements will help you navigate the complexities of the virtual asset industry in Hong Kong.