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The Cayman Islands Creates Regulatory Framework to Attract Virtual Asset Business

On October 31, the Ministry of Financial Services of the Cayman Islands government announced that it has put new legislation for Virtual Asset Service Providers (VASPs) into effect.

The Ministry’s new regulatory framework aims to strengthen its ability to attract and regulate companies and individuals that deal with digital assets as a business.

The Cayman Islands is a British overseas country that legally recognizes cryptocurrencies for trading and investment purposes. As the law implementation starts, the ministry seeks to effectively supervise firms and individuals that offer business services dealing with the use of cryptocurrencies on behalf of other entities or individuals.

The ministry announced the bill on 28 October, paving the way for the commencement of the regulatory framework in two phases. With the first phase started on October 31, the ministry focuses on enforcement, supervision, and compliance of countering the financing of terrorism (CFT) and anti-money laundering (AML) measures.

According to the law, virtual asset service providers already operating in the country or those intending to do so would need to notify the Cayman Island Money Authority (CIMA) and register with the agency and comply with the CFT/AML regulations.

The finance ministry said that the second phase would come into effect in June next year, which would focus on licensing requirements and supervision for VASPs. The ministry said that the new framework would strengthen the ability of the government to oversees activities of individuals and businesses offering cryptocurrency services in the country. In this way, the crypto enforcement framework would assist the government in fighting individuals and entities using digital assets for illicit ends.

The phase one of the cryptocurrency enforcement framework comes at a time when the Financial Action Task Force (FATF) and the Caribbean Financial Action Task Force (CFATF) are currently assessing the Cayman Island’s CFT/AML compliance program and its efforts to counter proliferation financing (CPF). The FATF is an intergovernmental organization that sets international standards against terrorist financing and money laundering. Countries should have national CPF/CFT/AML policies in compliance with the FATF standards. On the other hand, the CFATF is an organization of territories and states of the Caribbean Basin that have agreed to enforce key counter-measures against issues associated with money laundering.

The VASPs framework of Cayman Islands integrates the FATF’s standards for CPF/CFT/AML that the FATF revised and adopted in 2019. In the first phase, the CFT/AML standards provide virtual asset service providers with the opportunity to demonstrate their compliance with global standards for CPF/CFT/AML.

Cryptocurrency Regulation

With the proliferation of cryptocurrencies, nations across the globe have been rushing to develop regulatory frameworks. Although there has yet to be international regulations concerning crypto assets, the Financial Action Task Force (FATF) has set recommendations on how to deal with non-fiat currencies.

Several jurisdictions all around the world have taken different approaches to crypto regulation. The industry is still evolving, but governments have been quite slow to regulate the landscape. The Cayman Islands is one of the major economies that are friendly towards blockchain and cryptocurrency-related businesses. The country is well-known for its lenient and flexible regulatory policies for new businesses.

Dubai Regulator Grants Virtual Asset License to Former Singapore Legislator's Company

Former Singapore nominated Member of Parliament Calvin Cheng announced on Monday the establishment of his non-fungible token (NFT) and fan token investment holding company, Calvin Cheng Web3 Holdings FZE, in Dubai.

The development came after the Dubai Virtual Asset Regulatory Authority (VARA) awarded a provisional Virtual Asset License to the NFT and fan token investment holding firm owned by former Singapore parliamentarian Calvin Cheng.

VARA is the government agency responsible for regulating and overseeing the issuance, offering and relevant disclosure processes of virtual assets and NFTs in Dubai.

The Calvin Cheng Web3 firm will invest in projects to integrate crypto into fashion, media and entertainment” through its portfolio, including AmberX and CelebX.

AmberX is “an exclusive membership NFT” that allows qualifying members access to a Formula 1-related “VIP lifestyle and entertainment pop-up lounge” called Amber Lounge. On the other hand, CelebX is an NFT and fan token system designed to allow celebrities to engage with their social media followers directly and grant fans access to “exclusive benefits” with their idols.

The Calvin Cheng Web3 company stated that it decided to obtain the license to “gain access to a regulated ecosystem”. The firm further mentioned that the permit “provides greater customer assurance and increases consumer risk protection”, the firm further mentioned.

VARA described the Calvin Cheng Web3 Holdings FZE as the NFT firm that will be the “first international business to actively seek regulation, despite being able to operate lawfully in many other qualifying global jurisdictions”.

Cheng talked about the development and said that his firm is proud to be the first NFT virtual asset service provider to enter the ecosystem.

“A new and forward-thinking regulator like VARA is well-positioned to firmly establish Dubai as the leading global centre for digital assets,” Cheng stated. And he further said: “Digital assets is a new space that needs “progressive regulators” to keep up with entrepreneurs’ focus on innovation and growth.”

Apart from his venture in Dubai’s virtual assets ecosystem, Cheng is also chairman of ReTech Technology, a Chinese EdTech firm listed on the Australian Stock Exchange.

Dubai Becoming A Crypto Hub

Recently, crypto firms have been moving to launch their headquarters in Dubai.

In March, Binance, the world’s largest cryptocurrency exchange, and FTX Europe received provisional approval from Dubai’s new crypto regulator to set up a regional headquarters in the city. Global exchanges Crypto.com and Bybit and Crypto.com also said that they were establishing their business operations there during that month.

The license approvals came after Dubai issued its first law governing digital assets in March and formed the Virtual Asset Regulatory Authority (VARA) to oversee the sector.

The United Arab Emirates (UAE) has been pushing Dubai to become a regional hub for crypto businesses following its establishment of the virtual asset sector and regulations.

Hong Kong to Propose Statutory Licensing Regime for VASPs: CE John Lee

Chief Executive of HKSAR John Lee delivered his first policy address Wednesday, indicating that the administration has proposed a bill to establish a statutory licensing regime for virtual asset service providers.

In his first policy address to the Legislative Council, John Lee, the leader of Hong Kong, who took over the authority in July as the successor of Carrie Lam, expressed his stance towards virtual assets regulation and the outlook as well as the development in terms of digital Hong Kong dollars, according to the latest published policy address.

Speaking of virtual assets among various issues, Lee said:

“On virtual assets, the Government has introduced a bill to propose establishing a statutory licensing regime for virtual asset service providers. The Hong Kong Monetary Authority (HKMA) is examining market feedback on the regulation of stablecoins and will ensure that the regulatory regime is in line with both the international regulatory recommendations and the local context.”

Currently, only one licensed virtual asset trading platform, OSL, is listed on the Securities and Futures Commission (SFC) as of August 2022; while another private company, Hashkey Group, secured Approval-in-Principle in April to operate a licensed virtual asset trading platform from the SFC in Hong Kong, which received type 9 asset management license by SFC of Hong Kong in September, enabling them to manage a portfolio of virtual assets fully.

Michel Lee, Executive President of HashKey Group, spoke to Blockchain.News after the policy address, saying that “we expect the government to set out additional licensing regimes to entice more digital asset companies and firms to apply for SFC’s licences and become regulated players in Hong Kong.”

“These policies should in turn make Hong Kong the market-of-choice for these Web3 and blockchain-facilitated technology companies for legal and compliant capital and liquidity markets for their underlying economies.”

The Executive President added that the local blockchain community and market participants have been looking forward to a clearer regulatory framework on virtual assets in the city to regain its position as a major global virtual asset and Web3 hub, in the hope that to get it done by this year.

Previously, Lee’s deputy, Financial Secretary Paul Chan, disclosed to address the policy statement related to digital assets during the upcoming Fintech Week by the end of October.

Hong Kong remains struggling for the recovery and revival of the economy amid the pandemic of COVID-19, facing strong competitors regionally and globally as well. The city has joined other global countries to study the adoption of digital currency to boost the economy and its currency in the long term.

The policy address reads that the HKMA has also begun the preparatory work for issuing “e-HKD” and is collaborating with the Mainland institutions to expand the testing of “e-CNY” as a cross-boundary payment facility in Hong Kong.

Lee’s policy implementation comes after his speech in July, pledging to explore central bank digital currency in terms of retail level (rCBDC) and escalating the scenario for the application of mBridge initiative, a collaborative CBDC project between HKMA and the central banks of Thailand, China, the United Arab Emirates and the BIS to enhance multi-currency cross-border payments.

Over 600 Fintech companies in the city, according to statistics from the government.

The administration said “it is vigorously promoting Fintech by encouraging more Fintech services and products to undergo proof-of-concept trials, taking forward cross-boundary Fintech projects and nurturing Fintech talents.”

Hong Kong SFC Finalizes Regulatory Framework for Virtual Asset Trading Platforms

The Securities and Futures Commission (SFC) of Hong Kong concluded a consultation period today, revealing the finalized regulatory requirements for operators of virtual asset trading platforms licensed by the SFC.

Over the consultation period, the SFC collected 152 written submissions from stakeholders including industry and professional associations, professional and consultancy firms, market participants, licensed corporations, and individuals. These respondents largely welcomed the proposed measures, although several requested clarifications. Following an assessment of the feedback, the SFC made modifications and clarifications to some of the proposed requirements.

In a notable decision, the SFC has approved the proposal to allow licensed platform operators to cater to retail investors, with the majority of respondents showing agreement. To safeguard these investors, the SFC will introduce robust measures such as suitability assessments during onboarding, rigorous token due diligence, admission criteria, improved governance, and mandatory disclosures.

“Hong Kong’s comprehensive virtual assets regulatory framework adheres to the principle of ‘same business, same risks, same rules’, with a key focus on robust investor protection and risk management,” said Ms. Julia Leung, the SFC’s Chief Executive Officer. “This will foster sustainable industry development and support innovation.”

The newly released Guidelines for Virtual Asset Trading Platform Operators will come into effect from 1 June 2023, setting out key expectations such as the secure custody of assets, segregation of client assets, avoiding conflicts of interest, and complying with cybersecurity standards and requirements.

The SFC will provide further guidance on new regulatory requirements, license application procedures, and transitional arrangements. The application forms for trading platforms will be available on 25 May 2023 and the SFC will begin accepting applications on 1 June 2023.

In response to the regulations, operators are encouraged to apply for a license if they can comply with the SFC’s standards. Those unable or unwilling to comply should arrange for an orderly closure of their operations in Hong Kong.

To protect investors, the SFC will continue working with the Investor and Financial Education Council to educate the public about the risks of trading on unregulated platforms. At the time of this announcement, the SFC has not approved any virtual asset trading platform to provide services to retail investors. Most platforms currently accessible to the public are not regulated by the SFC.

The market’s response to the new regulations has been mixed, with the Hong Kong concept token CFX(Conflux) experiencing a pullback.

Currently, Hong Kong’s SFC has licensed only two virtual asset trading platforms: OSL Exchange and HashKey Pro. With the new regulatory framework set to take effect in June, this marks a significant milestone in Hong Kong’s efforts to regulate the fast-growing virtual asset sector.

Hong Kong SFC Chief Executive: New Guidelines for Crypto Trading Platforms Prioritize Investor Protection

The Hong Kong Securities and Futures Commission (SFC) announced that the upcoming guidelines for operators of virtual asset trading platforms will place investor protection at the forefront. Julia Leung, Chief Executive of the SFC, made these remarks on May 30 during an online seminar in the Distinguished Leaders Series hosted by the Hong Kong Institute of Finance.

Back in 2018, when the SFC first proposed regulatory measures for virtual asset trading platforms, it faced criticism from parts of the fintech sector. Critics claimed that the licensing system – requiring applicants to meet standards related to internal controls and investor protection – could drive financial technology companies to operate in other regions like Singapore. However, Julia Leung noted that the importance of these requirements became clear to the market after several overseas virtual asset platforms went bankrupt.

The guidelines for virtual asset trading platform operators in Hong Kong will take effect starting in June. Julia Leung believes these guidelines align with market expectations and that prioritizing investor protection is the right course of action. The guidelines will include measures on the prudent custody of assets, the separation of client assets, and avoiding conflicts of interest.

Julia Leung expressed her satisfaction with the SFC’s leadership in regulatory practices, saying, “We are pleased to see the SFC leading as a regulatory role model.”

The SFC’s new regulations underscore the importance of investor protection in an increasingly digital financial landscape and reflect a growing trend of financial regulators worldwide prioritizing investor safeguards in their approach to the fast-evolving cryptocurrency industry.

Hong Kong Aims to Lead in Green Finance and Web 3.0, Says Financial Secretary

Hong Kong is setting its sights on becoming a global leader in two new fields: green finance and Web 3.0, according to a recent speech by the city’s Financial Secretary Paul Chan. The speech outlined Hong Kong’s strategic plans for economic development, with a special emphasis on these two innovative sectors.

Chan highlighted Hong Kong’s dedication to green finance, a commitment that mirrors the worldwide trend towards sustainable and eco-friendly practices in finance. Last year, Hong Kong’s green finance initiatives reached a staggering 80 billion US dollars, making up one-third of Asia’s total bond issuance. The city is also leading the way in setting market standards for green bonds, with the launch of 30-year US dollar green bonds and 20-year Euro bonds.

In a groundbreaking move, Hong Kong has started issuing green bonds using tokenization, showcasing its commitment to financial innovation.

Alongside green finance, Hong Kong is also setting its sights on Web 3.0, with a special focus on virtual assets. Drawing from experiences around the globe, the city began issuing licenses for these assets on June 1st. The Hong Kong Securities and Futures Commission is tasked with enforcing effective regulation and fostering sustainable growth in this sector.

The Financial Secretary also highlighted in his speech that as a financial center, the market value of Hong Kong’s stock market is 4.6 trillion US dollars, and the scale of asset management and wealth management businesses is also 4.6 trillion US dollars.

South Korea Intensifies Measures Against Unlicensed Crypto Exchanges

South Korean financial officials issued a directive on December 4, 2023, requesting users to report any unregistered cryptocurrency exchanges operating in the area. This directive was made in an effort to control the market. This approach is a reflection of South Korea’s continuous attempts to simplify its digital asset market and protect investors from the possible hazards connected with virtual asset exchanges that are not regulated.

The Financial Intelligence Unit (FIU) of South Korea, in conjunction with the Digital Asset Exchange Association (DAXA), was the driving force behind this effort. A crucial part of the regulatory system is played by the Digital Asset Exchange Association (DAXA), which is comprised of the five most important digital asset exchanges in South Korea: Upbit, Bithumb, Coinone, Korbit, and Gopax. Within the scope of their combined efforts, they want to identify local as well as international virtual asset company operators who may be targeting Korean people, which might be considered a violation of Article 7 of the Specific Financial Information Act.

DAXA is the organization that first investigates reports of illicit business operations carried out by bitcoin exchanges. After the results have been compiled, they are sent to the FIU, which is responsible for determining the operator’s status and deciding what steps are required. If it is discovered that operators are continuing their operations that have not been disclosed, the Federal Investigation Unit intends to involve investigative authorities and take the necessary actions. The public is strongly urged to report these businesses using the tip email provided by DAXA. The information that is sent should include pertinent corporate information, grounds for suspicion, and proof of actions that have not been reported.

South Korea is making a wider push to boost its engagement in the cryptocurrency business, and this new development is a part of that larger endeavor. As part of an effort to promote openness, the Democratic Party of South Korea has demanded that candidates for parliamentary seats reveal their personal cryptocurrency holdings. In addition, the South Korean Financial Supervisory Service (FSS) made an announcement in October that it was making preparations for laws that would augment the Virtual Asset Users Protection Act that had been approved earlier in 2023. It is anticipated that these laws will be in effect by January 2024, which will represent a major milestone in the manner in which the nation approaches the regulation of cryptocurrencies.

In order to show its dedication to the development of a secure and regulated digital asset market, South Korea has taken a position on the regulation of cryptocurrencies. The nation’s goal is to safeguard investors and preserve the integrity of its financial system at the same time by carefully monitoring and taking action against cryptocurrency exchanges that do not have legitimate licenses.

Hong Kong Embraces Virtual Asset Spot ETFs

Around ten fund companies are currently preparing to launch Virtual Asset Spot Exchange-Traded Funds (ETFs) in Hong Kong, according to Caixin. This move positions Hong Kong as the first market in Asia to permit the listing of such ETFs, marking a notable shift in the region’s approach to virtual assets.

This development comes as 13 Bitcoin spot ETFs await approval from the United States Securities and Exchange Commission (SEC). Livio Weng, the Chief Operating Officer of HashKey Group, disclosed in an exclusive interview with Caixin that seven to eight of these companies are already in the advanced stages of this initiative. The groundwork for this significant step was laid in December 2023, when the Hong Kong Securities and Futures Commission and the Hong Kong Monetary Authority issued circulars indicating their readiness to accept applications for these Virtual Asset Spot ETFs.

The introduction of Virtual Asset Spot ETFs in Hong Kong is a pivotal moment, reflecting the region’s growing acceptance and integration of virtual assets into its financial ecosystem. This move is expected to offer investors a new avenue to engage with virtual assets, providing a regulated and structured environment for investment.

As these fund companies prepare for the launch, the global financial community watches with keen interest. The success of these ETFs could pave the way for similar products in other Asian markets, potentially leading to a broader acceptance and mainstreaming of virtual assets across the region. Furthermore, this development highlights Hong Kong’s role as a dynamic financial hub, adaptable to evolving market trends and investor needs.