Navigating the Regulatory Landscape: Understanding VASP and VATP in Hong Kong’s Virtual Asset Market
Hong Kong’s burgeoning virtual asset market is attracting globalattention, but navigating its regulatory landscape can be complex. Two key terms often arise in this context: Virtual Asset Service Provider (VASP) and VirtualAsset Trading Platform (VATP). While these terms are related, they are not interchangeable and understanding their distinction is crucial for entities operating in this space.
Defining the Terms:
- VASP: This is a broad term encompassing various entities engaged in virtual asset activities. As defined by the Financial Action Task Force on Money Laundering (FATF), VASPs include individuals or legalentities involved in activities like:
- Exchanging virtual assets for fiat currency
- Exchanging one virtual asset for another
- Transferring virtual assets on behalf of others
- Providing custody or administration of virtual assets
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Facilitating financial services related to the issuance, sale, or distribution of virtual assets (e.g., ICOs)
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VATP: This refers specifically to platforms facilitating virtual asset trading and exchange, often including custody services. VATPs act as intermediaries connecting buyers and sellers, enabling them to trade ina regulated environment.
Regulatory Implications:
The distinction between VASP and VATP is crucial because it directly impacts how these entities are regulated under Hong Kong law. The Securities and Futures Commission (SFC) has established specific regulatory guidelines for both VATPs and other VASPs.
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VATPs: Due totheir direct involvement in virtual asset trading and custody, VATPs face stricter regulations, particularly regarding security measures, anti-money laundering (AML) and counter-terrorism financing (CFT) compliance, and investor protection.
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VASPs: While other VASPs, such as virtual asset fund managers and advisors, arealso subject to regulation, the focus is more on risk management, client disclosure, and operational integrity.
The Importance of Virtual Asset Definition:
The 2022 Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Ordinance (AMLAO) defines virtual assetsas:
- Digitally represented forms of value that are cryptographically secured, can be transferred, stored, or traded electronically, and can be used for payment or investment purposes, including cryptocurrencies and other asset classes in virtual worlds.
- Digitally represented forms of value that are cryptographically secured and thatgrant rights, entitlements, or access to any cryptographically secured form of digitally represented value, such as governance tokens.
Importantly, AMLAO excludes certain items from the definition of virtual assets, including:
- Digitally represented forms of value issued by central banks or governments
- Digital tokens with limited usecases
- Securities or futures contracts
- Any floating funds or deposits related to a stored value facility
This definition is significant because AMLAO explicitly limits the definition of virtual assets to non-securities, excluding virtual assets defined as securities under the Securities and Futures Ordinance (SFO).
DualRegulation:
While the initial definition of virtual assets seemed to fall outside the SFC’s regulatory scope, the new virtual asset regulatory regime in Hong Kong requires entities holding SFC licenses and engaging in virtual asset activities to comply with both securities and non-securities related regulations. This means adhering to both the S
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