Joint Circular from the Hong Kong Securities and Futures Commission and the Hong Kong Monetary Authority: Intermediaries are allowed to provide virtual asset pledge services

On October 8, the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) jointly announced the issuance of a "Supplementary Joint Circular on Virtual Asset-Related Activities of Intermediaries" on September 30, which significantly updates the current licensing and registration requirements for intermediaries involved in virtual assets.

This revision aims to respond to the actual needs of market development, incorporate industry feedback, further optimize the regulatory framework, and moderately relax some regulations to promote the steady and regulated development of virtual asset-related businesses.

The two authorities also stated that further guidance will be issued regarding activities involving designated stablecoins. The supplementary circular covers the following four key points: First, qualified intermediaries are permitted to provide virtual asset staking services to clients, but they must operate through separate accounts, such as licensed virtual asset platforms, and must fully disclose the relevant risks to clients to ensure that they make fully informed decisions.

Secondly, licensed corporations and registered institutions can provide virtual asset trading services to clients outside of their platforms through licensed virtual asset platforms, broadening service channels while maintaining regulatory compliance.

Third, it clarifies that clients using virtual assets to subscribe for or redeem investment products (including physical subscriptions or redemptions of virtual asset funds) does not constitute the provision of virtual asset trading services.

Intermediaries handling such transactions must notify the regulator in advance, maintain compliance with relevant virtual assets, and strictly adhere to anti-money laundering and counter-terrorist financing regulations.

Fourth, the regulations further clarify the requirements for client net worth, making it clear that intermediaries must ensure that clients have sufficient net worth to mitigate potential risks. Furthermore, for virtual asset futures contracts, intermediaries are required to provide clients with a specific risk disclosure statement, but this requirement does not apply to institutional professional investors or qualified corporate professional investors.

This policy adjustment reflects the Hong Kong regulator's efforts to strike a balance between protecting investor rights and promoting innovation and development in the industry. It provides a clearer compliance path for virtual asset-related businesses and lays the foundation for the continued improvement of subsequent regulatory policies.