Using Chatpdf To Summarise The Hong Kong SFC Virtual Asset Trading Operator Guidelines 2023 Rules Into An Actionable Guide For practitioners.

What is chatpdf?

Chatpdf (see here), is a powerful, free AI powered PDF tool that provides the ability to summarise pdf file content in a timely and accurate manner.

FCJ uploaded the Guidelines into the platform. After a short wait of several seconds only, the application was ready to summarise the pdf.

One additional feature is the ability to interact with the pdf to answer any questions the user may have as it relates to the content of the pdf. See screenshot below.

We asked the tool three questions.

“Please summarise the Client asset and custody requirement of the VATP?”

The tool provided the following response:

“The client asset and custody requirements for Virtual Asset Trading Platform Operators

(VATP) are outlined in Section X of the guidelines. Here are the key points:

1. Safeguarding Client Assets:

   -VATPs must ensure that all client virtual assets are safeguarded properly. This involves holding them in designated wallet addresses established by their Associated Entities, which are specifically for client assets.

2. Segregation of Assets:

   -Client virtual assets should be segregated from the VATP's own assets and those of its Associated Entities to prevent any potential misuse or commingling of funds.

3. Internal Policies:

   -VATPs are required to establish and implement written internal policies and governance procedures to ensure:

   -Virtual assets held are the same as those owed to clients and in the correct amounts.

   -Client assets are handled appropriately, adhering to any restrictions on their use (e.g., only for transaction settlements).

4. Record Keeping:

   -VATPs must maintain comprehensive records of all client assets, including details about their holdings, transactions, and any disposals. This includes reconciling differences in balances and ensuring the ability to trace movements through accounting systems,.

5. Audit Trails:

   -Records should be maintained that facilitate convenient and proper audits, allowing for transparency and compliance verification.

   
   
6. 
   

These requirements aim to protect clients' virtual assets, ensuring they are managed securely and transparently by the platform operators.”

We next provided the following prompt:

“Please convert the entire document into a study guide.”

The tool provided the following output:

“Here's a concise study guide summarizing the "Guidelines for Virtual Asset Trading Platform Operators":

---

Study Guide: Guidelines for Virtual Asset Trading Platform Operators

I. Interpretation and Application

• Overview of scope, definitions, and applicability of the guidelines.

II. Fitness and Properness Requirements

• Operators must meet specific fitness criteria, including integrity and experience.

III. Competence Requirements

• Operators need to demonstrate sufficient knowledge and skills to manage operations effectively.

IV. Continuous Professional Training Requirements

• Ongoing training is essential for staff to keep up-to-date with industry standards and practices.

V. Conduct of Business Principles

• Operators must uphold fair business practices, transparency, and ethical behavior.

VI. Financial Soundness

• Operators should maintain robust financial health, ensuring they can meet obligations to clients.

VII. Operations

• Guidelines on the operational structure and processes for efficient management of trading activities.

VIII. Prevention of Market Manipulative and Abusive Activities

• Operators must implement measures to detect and prevent market manipulation and abuse.

IX. Dealing with Clients

• Clear protocols for client interactions, including onboarding, risk assessments, and disclosures.

X. Custody of Client Assets

• Safeguarding and Segregation: Client assets must be held in designated wallets and kept separate from the operator’s assets.

• Internal Policies: Operators need policies for managing client assets, including transaction limits and reconciliation processes for accuracy.

• Record Keeping: Comprehensive documentation and audit trails are required for transparency in asset handling.

XI. Management, Supervision, and Internal Control

• Operators should have a clear governance structure with defined roles and responsibilities.

XII. Cybersecurity

• Implement robust cybersecurity measures to protect client data and assets from breaches.

XIII. Conflicts of Interest

• Operators must identify and manage potential conflicts to maintain client trust.

XIV. Record Keeping

• Detailed records need to be maintained on client transactions, communications, and compliance with guidelines.

XV. Auditors

• Independent audits should be conducted to evaluate compliance and operational integrity.

XVI. Ongoing Reporting and Notification Obligations

• Operators have responsibilities for ongoing reporting to regulators and notifying clients of significant changes.

Schedules

• Schedule 1: Defines Professional Investors.

• Schedule 2: Provides templates for Risk Disclosure Statements.

• Schedule 3: Details requirements for Audit Logs and Incident Reports.

• Schedule 4: Lists Required Information and Notifications for compliance.”

We next requested more specific regulatory guidance from the document.

“What are the requirements for prevention of market manipulation?”

The document provided the following response:

“The requirements for the prevention of market manipulation as outlined in the guidelines include the following key points:

1. Written Policies and Controls:

   -Operators must establish and implement comprehensive written policies and procedures designed to monitor trading activities effectively and prevent market manipulation or abusive trading practices.

2. Market Surveillance Systems:

   -Operators are required to adopt an effective market surveillance system provided by a reputable, independent provider. This system should be capable of identifying, monitoring, detecting, and preventing market manipulative or abusive activities.

3. Detecting Anomalies:

   -Internal controls should be in place to identify and detect anomalies in trading activities, such as sudden price spikes or other suspicious behavior. Regular independent reviews should be conducted to assess these anomalies.

4. Immediate Actions:

   -Upon discovering manipulative or abusive activities, the operator must take immediate steps to restrict or suspend trading. This could involve suspending accounts linked to such activities.

5. Regular Review and Enhancement:

   -Operators should regularly review the effectiveness of their market surveillance systems, at least annually, and be prepared to make necessary enhancements to improve detection and prevention efforts.

6. Notification Obligations:

   -Operators are obliged to notify the relevant regulatory authority (e.g., the SFC) as soon as they become aware of any market manipulative or abusive activities and to provide assistance as required in investigating these matters.

   
   

These requirements aim to ensure that Virtual Asset Trading Platforms operate fairly and maintain market integrity, protecting clients and promoting trust in the virtual asset trading environment.”

Conclusion

This tool is complimentary to a practitioner seeking to access in summarized form, regulations or details extracted from a document that they can obtain a quick summary on.

Again the initial prompt provided could be tweaked and could result in improved output and the Future Compliance Journal will continue to study this.

Note: The Future Compliance Journal was not compensated nor had sought any advice nor consultation from the application provider during the course of preparing this blog post. This does not constitute any legal or regulatory advice and the Future Compliance Journal is not responsible for any readers use of the application nor applying the results of its findings to the readers circumstances. Readers should seek their own regulatory and legal advice and should also seek advice as to whether this application is suitable for their organization use.