New SFC Circular streamlines licensing for Virtual Asset Trading Platforms

In this news update, Pádraig Walsh from our Fintech practice group looks at the streamlined licensing process for virtual asset trading platforms (VATPs) introduced for all applicants by the Securities and Futures Commission (SFC) in its 16 January 2025 Circular[1].

Streamlined licensing process

This Circular extends an initiative of the SFC for deemed applicants announced in a prior Circular on 18 December 2024[2]. The new Circular revamps the external assessment process for VATP applicants whose applications are submitted to the SFC after 18 December 2024. The goal is to expedite the licensing process without sacrificing regulatory standards.

The revamped process primarily relates to the external assessment which is at the core of the VATP licensing process. Previously, the external assessment was conducted in two phases. This has been replaced by a single external assessment review under a tripartite arrangement between the VATP applicant, the SFC and the external assessor, requiring sign-off as an assurance assignment by a certified public accountant.

The external assessment process is triggered when receipt of a VATP licence application is accepted by the SFC. This acceptance of the licence application is not an approval of the application; it signifies simply that the SFC will proceed to review the VATP licence application. Before the SFC accepts the licence application, the SFC will assess the VATP applicant’s business structure, competence, fitness and properness of the VATP applicant and its ultimate controller, ultimate owners, substantial shareholders, proposed responsible officers and managers-in-charge, and the capability of the external assessor. Depending on the circumstances, the SFC may raise material concerns with the licence application, and return the application to the applicant with reasons.

If the SFC accepts the licence application, the VATP applicant must deploy its systems, and operate according to its submitted application documents. This is when the external assessment can begin. The VATP applicant, the external assessor and the SFC will agree terms for a scope of engagement and enter a tripartite agreement to enable all parties to communicate and engage in respect of the progress, findings and remediation of the external assessment. The external assessor must confirm that the VATP applicant’s policies and procedures are suitably designed and implemented to comply with the applicable SFC Guidelines for VATPs[3]. The assessment must be performed as a direct assurance engagement, signed by a practicing certified public accountant.

The SFC will play a supervisory role providing clarifications on regulatory requirements and offering feedback on findings of the external assessor. The VATP applicant will be expected to revise policies, systems and controls in line with the recommendations and findings of the external assessment and the SFC, before submitting a final report for the SFC’s approval.

Concluding remarks

This Circular marks a significant advance in the approach to VATP licence applications. There are no longer two phases of external assessment, and the single external assessment is integrated into the period of the licence application when systems are deployed. Further, the SFC can directly engage and provide guidance under the planned tripartite arrangement. This focuses time and effort on the period when systems and procedures can be tested, refined, reiterated and improved until compliant. This structured approach streamlines the licensing process, and also provides VATP applicants direct access to prompt regulatory feedback. There is reason to be confident that this initiative will encourage more VATP applications.

Pádraig Walsh and Oliver Lam

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Pádraig Walsh

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Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication. This article was last reviewed on 10 February 2025.

[1] Available on this link

[2] Available on this link

[3] Being primarily the SFC Guidelines for Virtual Asset Trading Platform Operators [link] and the SFC Guideline on Anti-Money Laundering and Counter-Financing of Terrorism [link]