New license for virtual asset providers to rock HK’s 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 AntiMoney Laundering and CounterTerrorist Financing (Amendment) Bill passed in 2022.

Under the new 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

With China easing its COVID-19 rules and travel restrictions in December and the recent stock market rebound, retailers are anticipating the opening of the borders between Hong Kong and China that could lend some support to the declining commercial real estate market, a recent report by CBRE reveals.

However, the analyst warns that interest rate hikes will still continue to weigh heavily on investment markets. This means the commercial real estate market is expected to receive a low volume of investments.

In CBRE’s report, investors are offloading their assets to pile up capital. An example of this is CSI Properties which sold its 17,230 square feet retail podium in Tuen Mun, COO Residence, for $440m or $25,537 per sq ft.

Citing news reports, CBRE said COO 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.

Residence generates $1.4m rental income per month, representing an initial yield of 3.7%.

This is seen as investors trying to wait for better deals and other opportunities before re-entering the real estate market.

Meanwhile, some asset owners who are facing some financial difficulties have actively disposed of their commercial assets like the recent sale of Stan Group/Tang family selling a 12,030 sq. ft. strata unit at Vigor Industrial Building, Tsing Yi for $74 million.

The group recorded a loss of $13 million or 15% compared to the property’s purchase price back in 2017.

“Higher cost of capital has begun to trigger more distressed sales from financially troubled vendors. The capital value of commercial assets is likely to continue on a decline mode with further cap rate expansion,” CBRE said.

More developments

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, adding 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.

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, Linklaters said.

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.

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