Hong Kong’s proposed pathway to fully licensing virtual asset exchanges – what, why and what’s next?

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This article was written by Urszula McCormack, Leonie Tear, Evan Manolios and Kellie Tse

The Financial Services and the Treasury Bureau (FSTB) of Hong Kong has launched a Public Consultation on Legislative Proposals to Enhance Anti-Money Laundering and Counter-Terrorist Financing Regulation in Hong Kong (Consultation).  The Consultation aims to enhance the anti-money laundering and counter-terrorist financing (AML/CTF) regime in Hong Kong by amending the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (AMLO).

In this alert, we focus on the proposed licensing of virtual asset exchanges (Proposed Licensing Framework), with a concise summary of the other areas provided at the end.

Hong Kong’s proposed pathway to fully licensing virtual asset exchanges
What, why and what's next?


3.66MB, 11 Pages

The implementation of Security of Payment (“SOP”) legislation has been contemplated and debated in Hong Kong for decades. See our previous article, here, about what SOP legislation is and the pilot scheme that has been running in Hong Kong since December 2021. Yesterday, on May 16, the Development Bureau published the Construction Industry Security of Payment Bill (“SOP Bill”). The SOP Bill was gazetted today (May 17) and will be introduced into the LegCo for first reading on May 29. A copy of the SOP Bill, together with the LegCo Brief, is accessible here. The SOP Bill, once enacted, will have a significant impact on the Hong Kong construction industry, and will drive significant changes to how contracts are administered, how contractors, sub-contractors and suppliers are paid and how disputes are managed in Hong Kong.

20 May 2024

In this article, we examine the impacts of the new approval mechanism from the Hong Kong Education Bureau (EDB) for “Other Charges” set out in EDB Circular No. 15/2023, the Implementation Details and related documents.

20 May 2024

The Hong Kong Monetary Authority (the “HKMA”) has extended its Green and Sustainable Finance Grant Scheme (the “GSF Grant Scheme”) for an additional three years, through 2027. Initially launched in May 2021, the GSF Grant Scheme supports the issuance of eligible green and sustainable bonds and loans in Hong Kong to foster the development of sustainable finance. The details of the extended GSF Grant Scheme were announced on 3 May 2024, with the updated guidelines for grant applications (the “2024 Updated Guidelines”) taking effect on 10 May 2024, the date of the extension. As with the original GSF Grant Scheme, the grants under the extended GSF Grant Scheme continue to consist of two tracks, covering: • General Bond Issuance Costs: This track covers 50% of eligible expenses with the caps maintained at either HK$2.5 million or HK$1.25 million (depending on whether the bond, issuer, or guarantor has a credit rating). • External Review Costs: This track covers the full cost of external review fees with an overall cap maintained at HK$800,000. The eligibility requirements are similar to those under the original GSF Grant Scheme, requiring, among others, the financial instruments to be issued in Hong Kong, the issuance size to be at least HK$1.5 billion for bond issuance cost grants or HK$100 million for external review cost subsidies, and a pre-issuance review by a recognised external reviewer. The key changes in the 2024 Updated Guidelines include: 1 Expansion of the Grant Scope: Transition bonds and loans have been added as eligible financial instruments. 2 Specific Caps for External Review Costs: Sub-caps for pre-issuance and post-issuance external review cost have been set on top of the original total cap. Applications for grants for bonds or loans issued from 10 May 2024 must follow the 2024 Updated Guidelines. The application procedure remains the same as in the original GSF Grant Scheme, where applications for bond issuance costs grants are to be submitted to the HKMA by the lead arrangers or lead lenders while applications for external review costs grants may be submitted by issuers or borrowers directly. Recognised arranger and recognised external reviewer statuses certified by the HKMA before 10 May 2024, will remain valid. Overview of the Hong Kong GSF Grant Scheme For easy reference, the below is an overview of the updated GSF Grant Scheme. For full details on the GSF Grant Scheme, please refer to the 2024 Updated Guidelines. 1. Eligible Instrument Types General Bond Issuance Costs Grant: Green, social, sustainability, sustainability-linked and transition bonds. External Review Costs Grant: Green, social, sustainability, sustainability-linked and transition bonds and loans. 2. Eligible Bond Issuers and Loan Borrowers General Bond Issuance Costs Grant: Eligible for first-time issuers who have not issued any green, social, sustainability, sustainability-linked, or transition bonds in Hong Kong within the five years preceding the eligible issuance, excluding such issuer acting as an arranger for the eligible bond issuance. External Review Costs Grant: Available to both first-time and repeated issuers and borrowers (each entity can apply for subsidy for two eligible loans at most ). 3. Criteria for Eligible Issuances For all applications: • Issued in Hong Kong: For bonds, at least half of the lead arrangers must have recognized arranger status by HKMA, and for loans, at least half of the loan amount must be provided by Hong Kong-based lenders. • Issuance Size: At least HK$1.5 billion for the bond issuance costs grant and HK$100 million for the external review costs grant. Applicable to bonds only: • Must be (i) lodged with and cleared by the Central Moneymarkets Unit (“CMU”) or (ii) listed on The Stock Exchange of Hong Kong Limited (the “HKEX”). • Issued, at issuance, to at least 10 persons, or fewer than 10 persons none of whom is an associate of the issuer. Applicable to green, social responsibility, and sustainability bonds and loans only: • pre-issuance external review related to the issuance demonstrating alignment with internationally-recognised principles, standards or guidance, as provided by a recognised external reviewer. Applicable to transition bonds and loans: • a developed and appropriately disclosed transition plan (or equivalent disclosures on climate transition strategy) at the entity-level . • pre-issuance external review demonstrating the adoption of internationally-recognised transition finance principles, standards or guidance (including the transition plan related elements under such principles, standards or guidance), as provided by a recognised external reviewer; and • for use-of-proceeds instruments, pre-issuance external review demonstrating alignment with an applicable internationally-recognised taxonomy, as provided by a recognised external reviewer. 4. Grant Amounts General Bond Issuance Costs Grant: 50% of eligible expenses (ie. fees to Hong Kong-based arrangers, Hong Kong-based legal advisors, Hong Kong-based auditors and accountants, Hong Kong-based rating agencies, HKEX listing fees and CMU lodging and clearing fees) up to the following caps: • HK$2.5 million where the bond, its issuer or its guarantor(s) possess a credit rating ; or • HK$1.25 million where no credit rating is available. External Review Costs Grant: Transaction-related fees paid to recognised external reviewers for up to a total cap of HK$800,000, further divided into specific caps as follows: • Pre-issuance external review (such as fees paid for certification, second-party opinion, verification, ESG scoring/rating, assurance): up to HK$250,000; and • Post-issuance external review: HK$200,000 per year for the first three years from the date of the eligible issuance or up until the maturity of the issuance, whichever is shorter.

14 May 2024