Revised license and laxer listing rules to rock Hong Kong fintechs

Hong Kong’s fintech industry can face a new licensing regime and relaxed listing requirements in 2023, according to the latest fintech legal outlook released by the law firm Linklaters. Linklaters highlighted three key developments in Hong Kong’s fintech space in the next 12 months: a new virtual assets service providers licensing regime; expected widened access to virtual assets for retail investors; and the possible relaxation of listing requirements in the future.

In 2023, there will be a new regime to license virtual asset service providers or VASPs, as set out by the revised guidelines under the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill passed in 2022.

Under the bill, anyone operating a business providing a virtual asset service (VA service) in Hong Kong, or holding themselves out as doing so, will need to be licensed as a VASP by the local Securities and Futures Commission.

“We are waiting for the SFC consultation on the regime details which will seek feedback on whether retail investors should be permitted to access these exchanges. This is a major change in approach, as previous proposals restricted the exchanges to ‘professional investors’ only,” Linklaters noted in their report.

Another major change that will shake the fintech industry is that of retail investors slowly being permitted more access to VAs, Linklaters noted.

“The SFC is cautious – at the beginning of 2022 retail investors were restricted to a limited suite of VA-related derivatives traded on conventional exchanges. However, in October 2022, the SFC announced it will consider applications to authorise some ETFs tracking VA futures, and therefore be offered to retail investors,” the law firm said.

Linklaters added that the SFC also promised a circular on a security token offerings regime, which will allow retail investor access for some offerings where there are proper safeguards.

The Hong Kong Monetary Authority (HKMA) earlier this year issued a discussion paper seeking feedback on a regime for regulating activities relating to payment-related stablecoins. Linklaters expect the HKMA to announce next steps soon, as the HKMA intends to introduce the new regime no later than 2023 or 2024. These developments mark a shift from the start of 2022 when traditional financial firms were given guidance by the SFC and the HKMA in a joint circular on how they should carry out VA-related activities.

A new listing regime might also be introduced over the next 12 months as Hong Kong continues to aim to be an attractive place for tech listings. The Hong Kong Stock Exchanged had launched a consultation for a listing regime for specialist technology companies. The consultation proposes to allow enterprises in specialist technology industries–which otherwise do not meet the eligibility tests for the main board on profit, revenue, or cash flow–to list in the city. Amongst the industries proposed are cloud-based services and artificial intelligence.

Property rights, competition investigations

In addition to the three key developments stated above, Linklaters further noted two more points that will affect Hong Kong’s fintech industry in 2023: competition investigations, and possible discussion regarding property rights for tokenised assets and legality of smart contracts

“One is that the Competition Commission has said that the digital economy is a priority sector, and we are aware of investigations by the Commission in this area. It is therefore a ‘watch this space’ to see whether any actions arise, and a reminder that conduct and merger rules still apply in this space,” Linklaters wrote.

Linklaters also noted that of a government’s policy statement, which noted that further work may be required on property rights for tokenised assets and the legality of smart contracts. “This may be an area where we see developments in the coming year,” it said.