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In brief

On 3 November 2020, the Financial Services and the Treasury Bureau (“FSTB“) of the Government of the Hong Kong Special Administrative Region launched a consultation1 (“Consultation“) on proposals to enhance anti-money laundering and counter-terrorist financing (“AML/CTF“) regulation in Hong Kong under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (“AMLO“). The key enhancements include: (a) a new licensing regime for virtual asset services providers (“VASPs“), which will be regulated by the Securities and Futures Commission (“SFC“); and (b) a two-tier registration regime for dealers in precious metals, precious stones, precious products or precious asset-backed instruments (“DPMS“), which will be regulated by the Commissioner for Customs and Excise (“C&CE“). The changes are intended to align Hong Kong’s regime with the latest requirements and recommendations of the Financial Action Task Force. The Consultation will close on 31 January 2021.


  1. Key takeaways
  2. VASPs
  3. DPMS
  4. Next steps

Key takeaways

The new VASPs licensing regime and DPMS registration regime in the Consultation will impact: (a) virtual asset trading platform providers; and (b) persons dealing in precious metals, precious stones, precious products or precious asset-backed instruments, as summarised below.


Which regulator is responsible for licensing and oversight? The SFC.
What products and services will be regulated and require a licence? The new regulated activity (“Regulated VA Activity“) will cover the operation of a trading platform (“VA Exchange“) that:

  • is operated for the purpose of allowing an offer or invitation to be made to buy or sell any virtual assets (“VA“) in exchange for any money or any VA; and
  • comes into custody, control, power or possession of, or over, any money or any VA at any point in time during its course of business.

Subject to various exemptions, VA is proposed to be defined as a digital representation of value that:

  • is expressed as a unit of account or a store of economic value;
  • functions or is intended to function as a medium of exchange accepted by the public as payment for goods or services or for the discharge of a debt, or for investment purposes; and
  • can be transferred, stored or traded electronically.
Do the licensing requirements only apply when the regulated activity is undertaken in Hong Kong? Licensing requirements apply in the following circumstances:

  • conducting the Regulated VA Activity in Hong Kong; or
  • actively marketing (whether in Hong Kong or from elsewhere) to the public of Hong Kong a Regulated VA Activity or a similar activity elsewhere (i.e., services associated with a VA Exchange).
Are there any carve outs or exemptions? The following will fall outside the scope of VA:

  • digital representations of fiat currencies (including digital currencies issued by central banks);
  • financial assets (e.g., securities and authorised structured products) already regulated under the Securities and Futures Ordinance (“SFO“); and
  • closed-loop, limited-purpose items that are non-transferable, non-exchangeable and non-fungible (e.g., air miles, credit card rewards, gift cards, customer loyalty programs, gaming coins, etc.).

Operating the following platforms will not require a separate VASPs licence under the new regime:

  • peer-to-peer trading platform where the platform only provides a forum for the buyers and sellers of VA to post bids and offers for the parties to trade at an outside venue, to the extent that the actual transaction is conducted outside the platform and the platform is not involved in the underlying transaction by coming into possession of any money or any VA at any point in time; and
  • VA Exchange that is already regulated by the SFC as a licensed corporation under the SFO.
Any incorporation or personnel requirements to be eligible for a licence? Local entity: The licensee must be a Hong Kong incorporated company with a permanent place of business in Hong Kong.

Personnel requirements: At least two responsible officers (“ROs”), and all executive directors must be approved by the SFC as ROs.

Will there be licensing conditions imposed? Licensing conditions and regulatory requirements may be imposed, which will cover areas including:

  • serving professional investors only (at the initial stage)
  • adequate financial resources
  • proper corporate governance structure
  • prudent and sound business operations
  • appropriate risk management policies and procedures
  • proper segregation and management of client assets
  • robust VA listing and trading policies
  • financial reporting and disclosure
  • prevention of market manipulation and abusive activities
  • prevention of conflicts of interest
What AML/CTF requirements will apply once licensed? A licensee will be subject to AML/CTF obligations under the AMLO.


When to get a licence? A licence must be obtained within 180 days from the commencement date of the new regime.


Which regulator is responsible for registration and oversight? The C&CE.
What products and services will be regulated and require registration? DPMS registration will cover the conduct of the following activities (“DPMS Regulated Activities“):

a) trading in (i.e., selling, offering for sale, purchasing or possessing for sale/resale), importing or exporting precious metals, precious stones or precious products;

b) manufacturing, refining or carrying out any value-adding work (e.g., cutting, polishing, etc.) on precious metals, precious stones or precious products;

c) issuing, redeeming or trading in precious asset-backed-instruments; and

d) acting as an intermediary for a), b) or c) above.

The in-scope products include the following:

  • precious metal“: gold, silver, platinum or any other metal in the platinum group (i.e., iridium, osmium, palladium, rhodium or ruthenium) in a manufactured or unmanufactured state;
  • precious stone“: diamond, sapphire, ruby, emerald, jade or pearl;
  • precious product“: any jewellery, watch, apparel, accessory, ornament or other finished product made up of, containing or having attached to it, any precious metals or precious stones or both, and at least 50% of its value is attributable to the precious metals or precious stones or both; and
  • precious asset-backed instrument“: any certificate or instrument backed by one or more precious metals, precious stones or precious products that entitles the holder to such assets (in entirety or in part), but excluding securities, futures contracts, collective investment schemes or authorised structured products regulated under the SFO.
What is the proposed two-tier registration structure? There are two categories of registration for any person seeking to carry on a business of DPMS Regulated Activities in Hong Kong. The category required will depend on whether the person engages in any “specified cash transaction” i.e., making or receiving, in respect of any transaction involving DPMS Regulated Activities, a payment or payments in cash of at least HKD 120,000 in total, whether the transaction is executed in a single operation or in multiple operations which appear to be linked.

The proposed two-tier registration divides activities as follows:

  • Category A ⁠— for those who will not engage in any specified cash transactions.
  • Category B ⁠— for those who will engage in specified cash transactions.
Do the registration requirements only apply when the regulated business is undertaken in Hong Kong? Non-domestic DPMS are exempt from registration if all of the following conditions are met:

  • The person is a natural person who does not ordinarily reside in Hong Kong, or is a legal person incorporated outside Hong Kong and is not registered under the Companies Ordinance as a non-Hong Kong company.
  • The person does not have a permanent place of business in Hong Kong.
  • The person carries out DPMS Regulated Activities in Hong Kong for no more than a total of 90 calendar days in any given year.
Are there any carve outs or exemptions? Banks, licensed corporations, insurance institutions, money service operators and stored value facilities regulated under the AMLO are exempt from the registration requirement where they conduct DPMS Regulated Activities which are ancillary to their principal business.
What are the criteria to be registered? Category A: Filing an application accompanied by a valid business registration certificate, addresses of all premises pertaining to the place of business and a declaration that the registration is being obtained for a lawful purpose. Registration is valid as long as the DPMS continues to stay in business subject only to the payment of annual fees.

Category B: Applicants are subject to a fit and proper assessment, in addition to those procedural requirements mentioned above regarding Category A applicants. Registration is valid for three years and renewal is also subject to a further fit and proper assessment.

What AML/CTF requirements will apply once registered or to non-domestic dealers? A Category A registrant will not be subject to any AML/CTF obligations under the AMLO.

A Category B registrant will be subject to AML/CTF obligations under the AMLO.


A non-domestic dealer will need to file a cash transaction report with the C&CE within one day of completion of any specified cash transactions and in any event before departure from Hong Kong.

When to get registered? DPMS who have been in operation immediately before the commencement of the proposed regime will be allowed 180 days to apply for registration. During the transitional period, DPMS carrying on DPMS Regulated Activities will be deemed to have been registered until such time as an application is approved.

Next steps

The proposed changes outlined in the Consultation will have wide implications for businesses that engage in virtual assets, precious metals and precious stones which are not currently regulated. Businesses in these sectors should consider the following:

  • Will they require a licence or registration under the new regime?
  • If a licence or registration is required, is it possible to redefine the scope of their business to fall within a carve-out or exemption?
  • If a licence or registration is required and will be applied for:

-What is the scope of permissible activities under the licence or registration?

-What resources and systems are required in order to meet the application criteria?

-What are the ongoing compliance requirements and commitments for resources and systems?

-What is the overall timetable?

Submissions in response to the Consultation are due by 31 January 2021. If you would like to collaborate on a submission, or if you have any questions on how the proposed changes may impact your business and activities, please liaise with your usual contact at Baker McKenzie or the lawyers listed in this client alert.



Karen Man is a partner in Baker McKenzie’s Financial Services group, leading the non-contentious Financial Services Regulatory practice. Her clients include global, Chinese and local banks, fund managers, brokers/dealers, money service operators and fintech firms. Karen is admitted to practice in Hong Kong, the UK, and Australia.


Grace Fung is a partner in Baker McKenzie’s Financial Services group.


Aaron Dauber is a Registered Foreign Lawyer and the Knowledge Lawyer for Baker McKenzie's non-contentious Financial Services Regulatory practice. He is responsible for monitoring and training on regulatory change, legal content projects and other knowledge initiatives to support the firm and our clients. Aaron's experience includes over 13 years' as an in-house counsel responsible for legal support to businesses across the Asia Pacific region including Japan and Australia with a global systemically important bank.