6 Crypto and Fintech Payment Licences You Need to Know

Payment licence - MSO (Money Service Operator)

The MSO licence is what you need if you operate a payment business in Hong Kong. It is administered by the Customs and Excise Department in Hong Kong. Airwallex, LianLian, RD and RedotPay are examples of MSO licence holders.

The MSO licence is becoming increasingly difficult to obtain. If your business plan does not show that you can successfully operate a payment business in Hong Kong, then you will likely be told to withdraw your application at the interview stage. You will have wasted time and cost.

What might help is if you are already running an existing business that would support the operation of a payment business. The key is to show that you already have significant penetration in a certain market sector that would enable you to run a sustainable payment business in Hong Kong.

You will need to hire a local compliance officer (CO) and money laundering reporting officer (MLRO) with a valid address proof and right to work in Hong Kong. A physical office in Hong Kong is needed. Opening a bank account is something that a lot of clients need to sort out early on. With the right legal adviser, you will be able to lower your cost while maximizing the chance of obtaining the MSO licence successfully.

Crypto exchange licence – VATP (Virtual Asset Trading Platform)

The VATP licence is required if you run a crypto exchange in Hong Kong, also known as a VATP. It is issued by the Securities and Futures Commission (SFC) in Hong Kong. OSL, Hashkey and EXIO are examples of VATP licence holders.

The VATP licence in Hong Kong (or VASP as it is called in some jurisdictions) is notoriously difficult and costly to obtain. It requires significant planning and the application process can take over a year. Many crypto exchanges that had applied for the VATP licence when the regime first came into force had eventually decided to withdraw. They were required to close down their operations in Hong Kong and relocate abroad.

The VATP regulatory framework imposes very strict requirements on split of client assets between hot and cold wallet, insurance and compensation arrangements. There are also requirements on KYC, AML, CFT, conflicts of interest, admission of virtual assets for trading, prevention of market manipulative and abusive activities, accounting and auditing, and risk management.

The good news is that you may not need the VATP licence if you operate outside of Hong Kong. There are licences in other countries such as Lithuania that are friendly to crypto exchanges. Binance, Gate, OKX and Bybit are some of the largest global crypto exchanges without the VATP licence in Hong Kong.

Crypto OTC licence – VA dealing

There is a lot of demand for crypto on-ramp and off-ramp services. The VA dealing licence is required if you plan to run a crypto OTC business in Hong Kong, i.e., conversion between crypto and fiat. For example, if you convert between USDT and HKD/USD for your customers in Hong Kong, then you will need the VA dealing licence. This licence is formulated under a new VA dealing regime proposed by the SFC.

Currently, crypto OTC trading is often offered through physical shops in Hong Kong and mobile apps online to retail customers. In Hong Kong, you can find these shops in numerous locations such as Admiralty, Tsim Sha Tsui, Causeway Bay and Mong Kok. There are also brokers and liquidity providers offering crypto OTC trading for institutional clients and high net worth individuals.

The requirements for obtaining the VA dealing licence are as follows:

Minimum paid-up share capital of HK$5 million, with liquid capital of up to HK$3 million and excess liquid capital equivalent to at least 12 months of actual operating expenses.

Hong Kong entity with a permanent place of business in Hong Kong or an overseas company registered in Hong Kong, with suitable premises for storage of books and records.

At least 2 responsible officers (ROs) approved by the SFC.

All executive directors must also be ROs.

The applicant, directors, substantial shareholders and ultimate owners will need to satisfy the “fit and proper” requirements, such as no conviction of AML and dishonesty offences, and not subject to bankruptcy or liquidation proceedings.

Crypto custody licence

If you are a crypto custody service provider and you offer your services in Hong Kong, then you will need to be licenced. Traditionally, providers rely on the TCSP licence as the TCSP licence is required to hold client assets on trust. However, under the new regime, the VA custodian service provider licence issued by the SFC will be required. The safekeeping of private keys and any other instruments enabling the transfer of crypto will require the VA custody licence.

Tokenized securities are excluded from the definition of VA. If your custody services include only tokenized securities then you will not require a VA custodian service provider licence.

Crypto KOL licence – VA advisory

If you advise on crypto, then you may need to be licenced by the SFC. If you are a crypto KOL and you send mass massages on channels such as Telegram, you may need to think about whether a licence is required. The question is whether your “advisory” services fall in scope of the licensing regime. If the advice you give relates to the purchase and sale of crypto, then you will likely fall in scope. A detailed definition will be proposed in the legislation which is generally in line with the traditional Type 4 (advising on securities) regulated activity under the SFO.

Crypto asset management licence

If you manage a portfolio consisting of crypto, then you will need to be licenced by the SFC. The proposed legislation will generally be in line with the traditional Type 9 (asset management) regulated activity under the SFO. It is also proposed that the 10% de minimis threshold will not apply under the new regime, meaning that any level of VA being managed under your portfolio will need to be licenced.