What license is required to operate a virtual currency exchange in Hong Kong?
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What license is required to operate a virtual currency exchange in Hong Kong?
If conducting virtual asset trading-related business in Hong Kong, licenses 1, 4, 7, and 9 are generally involved in terms of application and holding, depending on the specific types of services provided.
Navigating Web3 tides with focused insightsAuthor: Liu Honglin
On October 3, 2024, the Securities and Futures Commission (SFC) of Hong Kong updated its official website to include a new licensed virtual asset trading platform (VATP), HKVAX. This marks the third cryptocurrency exchange officially recognized by Hong Kong regulators, following OSL Exchange and HashKey Exchange. According to reports from Ming Pao, a prominent Hong Kong media outlet, HKVAX has already obtained SFC-issued Type 1 (Securities Trading) and Type 7 (Automated Trading Services) licenses, offering Hong Kong-based digital asset investors OTC brokerage services, cryptocurrency trading, and comprehensive virtual asset custody solutions.
At this point, some may wonder: If I want to operate a compliant cryptocurrency exchange in Hong Kong, should I apply for a Virtual Asset Trading Platform license, or must I obtain Type 1 and Type 7 licenses? Do other exchanges follow the same path? Before answering these questions, ManQin Law will first walk you through the current licensing landscape among existing and provisionally licensed virtual asset platforms in Hong Kong.
Overview of Licensed Virtual Asset Trading Platforms in Hong Kong
Based on the list of licensed and pending applications for virtual asset trading platforms published on the SFC’s website, ManQin Law has compiled a summary of their licensing status.
- OSL Exchange: Holds Type 1 and Type 7 licenses, plus approval to operate a virtual asset trading platform
- HashKey Group: Different subsidiaries hold different licenses:
- Hash Blockchain Limited (i.e., HashKey Exchange): Holds Type 1 and Type 7 licenses, plus VATP approval
- HBS (Hong Kong) Limited: Holds Type 1 and Type 4 licenses
- HashKey Capital Limited: Holds Type 4 and Type 9 licenses
- HKVAX: Holds Type 1 and Type 7 licenses
- BGE: No licenses held
- HKbitEX: Treated as having VATP approval
- VDX: No licenses held
- PantherTrade: Treated as having VATP approval
- Accumulus: Treated as having VATP approval
- DFX Labs: Treated as having VATP approval
- Bixin.com: Treated as having VATP approval
- EX.IO: Treated as having VATP approval
- bitV: No licenses held
- YAX: Treated as having VATP approval
- Bullish: Treated as having VATP approval
- Crypto.com: Treated as having VATP approval
- WhaleFin: Treated as having VATP approval
- Matrixport HK: Treated as having VATP approval
It is important to note that although most platforms are marked as "treated as licensed," this status indicates they remain under temporary authorization. These platforms can only offer virtual asset services under strict limitations and primarily to professional investors. During this phase, they are prohibited from serving retail investors and face significant restrictions on service offerings. Specifically, they cannot provide margin trading, trade virtual asset derivatives (such as futures contracts), offer lending services, conduct market-making activities, or engage in other high-risk financial operations.
Notably, while the majority of virtual asset exchanges have not yet received formal SFC licenses, most have applied for recognition under the Virtual Asset Trading Platform regime. Interestingly, the only three platforms that have been formally granted VATP status—OSL, HashKey, and HKVAX—all already hold both Type 1 and Type 7 licenses.
So what exactly is the relationship between the Virtual Asset Trading Platform permission and the underlying financial licenses? Is it mandatory to hold Type 1 and Type 7 licenses in order to obtain VATP approval?
Virtual Asset Trading Platform Permission vs. Financial Licenses
In Hong Kong, any centralized virtual asset trading platform that either (1) is actively conducting business or (2) promoting its services to Hong Kong investors must be licensed and regulated by the Securities and Futures Commission (SFC). This requirement stems from two key pieces of financial legislation:
1. The Securities and Futures Ordinance (SFO)
The regulatory framework under the SFO governs centralized platforms involved with licensed activities requiring Type 1, Type 7, and similar licenses, specifically those that:
- Use an automated trading system to match client orders for security token trading; and
- Provide custodial services as ancillary to trading services.
2. The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO)
AMLO governs the Virtual Asset Trading Platform (VATP) licensing regime, targeting centralized platforms that:
- Use an automated trading system to match client orders for non-security tokens; and
- Provide custodial services as part of trading operations.
However, given that the nature of virtual assets can evolve over time—shifting between being classified as securities or non-securities—the SFC recommends a prudent approach: platforms should seek licensing under both the SFO and AMLO regimes to ensure regulatory compliance and uninterrupted operations.
Now, what do Type 1 and Type 7 licenses actually cover? Are additional licenses required beyond these two to operate virtual asset-related businesses in Hong Kong? And why does HashKey also hold Type 4 and Type 9 licenses? To answer these, we need to understand Hong Kong's financial licensing system.
Overview of Hong Kong Financial Licenses
Under Hong Kong’s Securities and Futures Ordinance (SFO), the financial market is divided into several categories, each requiring specific licensing for operation. Below are the common types of licenses and their respective scopes:
- Type 1 License: Permits dealing in securities, including buying and selling securities and providing investment advisory services related to securities.
- Type 2 License: Authorizes dealing in futures contracts.
- Type 3 License: For leveraged foreign exchange trading platforms.
- Type 4 License: Allows provision of advice on securities investments.
- Type 5 License: Covers advice on futures contracts.
- Type 6 License: Permits advising on corporate finance matters such as capital raising, mergers and acquisitions, and IPOs.
- Type 7 License: Authorizes the operation of automated trading services via electronic platforms.
- Type 8 License: For securities margin financing activities.
- Type 9 License: Required for asset management companies.
- Type 10 License: Related to credit rating services.
At this point, another question arises: With so many license types available, do I need to apply for all of them if I want to run a crypto-related business in Hong Kong? ManQin Law’s answer is clear: No!
Apply for Licenses Based on Your Business Activities
Previously, ManQin Law published an article titled *“What Is the Difference Between VASP and VATP When Applying for a Hong Kong Cryptocurrency License? | ManQin Web3 Legal Guide,”* which detailed various crypto-related business models. It explained that Virtual Asset Service Providers (VASPs) encompass multiple entities, including but not limited to:
- Virtual asset fund managers;
- Virtual asset advisors;
- Virtual asset custodians;
- Virtual asset wallet providers; and
- Financial service providers involved in the issuance, offering, or sale of virtual assets, such as those supporting ICO projects.
Accordingly, operating a virtual asset trading-related business in Hong Kong typically involves applying for one or more of the following licenses—Type 1, Type 4, Type 7, and Type 9—depending on the nature of services provided:
If you plan to operate solely a cryptocurrency exchange in Hong Kong, aside from obtaining VATP approval, you generally only need to consider Type 1 and Type 7 licenses:
- Type 1 License: Applies to platforms facilitating trading of security-type virtual assets. In the crypto space, certain tokens may structurally qualify as securities. Therefore, exchanges handling such assets must obtain a Type 1 license to legally operate.
- Type 7 License: Nearly essential for all cryptocurrency exchanges, as they rely on electronic systems to enable automated trading of virtual assets.
Meanwhile, traditional financial institutions looking to integrate with virtual assets—such as Tiger Brokers (Up Fintech) and ZA Bank—can opt to apply for and hold a Type 1 license that includes virtual asset trading permissions.
Additionally, if your business focuses not on trading but on providing investment advice—such as running educational Telegram groups about crypto investing or acting as a cryptocurrency investment consultant—you must obtain a Type 4 license. Otherwise, you risk violating regulatory requirements, whether operating as an individual or a company.
Furthermore, if you intend to legally manage investment portfolios that include virtual assets and offer related investment services in Hong Kong, you must apply for a Virtual Asset (VA) Type 9 license. Some existing Type 9 license holders can simply upgrade their license scope to include virtual assets such as Bitcoin, Ethereum, and other cryptocurrencies and tokens. Investments may involve direct ownership of virtual assets or indirect exposure through derivatives and other financial instruments.
Notably, fund managers holding a Type 9 license are permitted to conduct securities trading and provide advisory services without needing separate Type 1 or Type 4 licenses. This suggests that if you aim to establish a diversified firm like HashKey Group—with operations spanning trading platforms, asset management, and advisory services—the most efficient route would be to directly apply for Type 7, Type 9 licenses, and VATP approval.
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