Hong Kong Crypto Exchanges Struggle for Full Licenses

The Hong Kong Securities and Futures Commission (SFC) has raised concerns over the ongoing inspection of crypto exchanges as they await full licensing in the region. While some crypto-focused platforms have received preliminary approval from the regulator, they still need to fully comply with the SFC’s stringent requirements to secure complete licenses.

Inspection Findings and Regulatory Measures

During recent on-site inspections, the SFC discovered that once considered licensed, some exchanges have not adequately addressed cybercrime risks. Bloomberg reported that several exchanges rely heavily on a small group of executives to manage client assets.

According to an SFC report, exchanges classified as “deemed-to-be-licensed” are operating under a temporary framework for crypto companies active in Hong Kong before the new regulations. The report also noted that, as of June 1, operating an unauthorized virtual asset exchange (VAE) in Hong Kong is a punishable offense, with the SFC committed to actively enforcing this regulation against violators.

Crypto exchanges in Hong Kong, including Crypto.com, Bullish, HKbitEX, PantherTrade, Accumulus, DFX Labs, Bixin.com, EX.IO, YAX, WhaleFin, and Matrixport HK, are still waiting for their full operational licenses.

The SFC has warned that if these platforms fail to address significant issues identified during inspections, they risk losing their temporary licensed status or having their license applications rejected altogether.

Hong Kong’s Crypto Regulation Plans

The Hong Kong government has announced plans to strengthen crypto regulations over the next 18 months, aiming to position the city as a global leader in financial technology.

David Chiu, a Hong Kong Legislative Council representative, outlined the city’s plan to attract tech professionals, build infrastructure, and enforce strong regulations at the Foresight Conference on August 11. He stressed the need for a reliable exchange system and timely stablecoin regulations, highlighting the digital asset sector’s recent growth.

Since June 2023, Hong Kong has been attracting investors and crypto exchanges to its new licensing framework, backed by the SFC’s recently proposed regulations for virtual asset trading platforms. Only two crypto platforms, OSL and HashKey, have obtained full licenses in Hong Kong. Meanwhile, crypto exchanges like OKX, Bybit, and Huobi HK have withdrawn their applications.