Hong Kong Gearing up to Approve More Cryptocurrency Exchange Licenses by Year End: SFC

As a seasoned analyst with years of experience navigating the volatile world of digital assets, I find myself intrigued by the recent developments in Hong Kong’s cryptocurrency landscape. The latest announcement by SFC CEO Julia Leung that more crypto exchanges are expected to receive regulatory approval by year-end is certainly promising news for the industry. With 11 applicants already undergoing on-site reviews, it appears that Hong Kong is moving towards becoming a significant player in the global crypto market.

By the year’s end, it is anticipated that the Hong Kong Securities and Futures Commission (SFC) will give the green light to additional cryptocurrency trading platforms to function within Hong Kong, as stated by SFC CEO, Julia Leung.

On October 6, Leung shared with HK01 that 11 platforms which submitted licensing applications have already undergone physical inspections. She anticipates advancements in their application process by the end of this year.

Her remarks were made after the local exchange HKVAX’s application was granted approval a week ago. The firm, planning to debut its platform by the end of this quarter, becomes the third exchange within the city to secure regulatory clearance.

HashKey and OSL previously had licenses, but these have now been upgraded under the new regulatory system.

Bullish, the parent company of CoinDesk, has also applied for a license.

It appears that the Securities and Futures Commission (SFC) has yet to provide an explanation regarding the exact number of platforms that have applied for the licensing regime. On their website, there are two different pages listing applications; one shows 11 applicants, while another displays 16. This discrepancy suggests that more clarity is needed from the SFC about the total number of applicants.

In response to criticisms suggesting Hong Kong’s current regulations are overly stringent, possibly hindering its aspirations as a hub for cryptocurrency and web3, there’s an assurance that future approvals will be granted.

In August, a report indicated that certain regulatory bodies had identified questionable operations at specific digital asset exchanges. More specifically, it was highlighted that some cryptocurrency companies lean excessively on a small number of executives to manage client assets securely, while others may not be adequately protecting against cyber threats.

Following unsuccessful attempts to attract major players such as Coinbase, even though they were extended an invitation to establish operations in Hong Kong by legislator Johnny Ng, other global corporations have decided against submitting their applications. However, Crypto.com continues to be listed among the potential applicants.

Among the companies that pulled out are OKX and Bybit, both of which withdrew their applications in May without revealing their motives. According to the South China Morning Post, a possible reason could be a notice from the SFC requiring them to restrict access to their services for mainland Chinese residents.

In an opinion piece in the Hong Kong Economic Journal shortly after OKX withdrew its application, lawmaker Duncan Chiu warned that the approval conditions borrowed concepts from traditional finance that he believed were too strict to apply to web3. He added that the remaining applicants were “small in scale.”

Concurrently, legislators have pointed out that the Securities and Futures Commission (SFC) often faces criticism when unscrupulous exchanges swindle Hong Kong residents. Last year, for instance, it faced intense backlash following the collapse of JPEX, a dubious exchange that cost over 2,600 Hong Kong citizens approximately $200 million. Despite more than 70 arrests related to the investigation into this exchange, no charges have been filed as yet.

As a result of JPEX’s shutdown, the Securities and Futures Commission (SFC) adjusted the way they disseminate information about exchanges to the public. Among these modifications, they began publishing lists of companies that have applied for licenses – a practice they previously kept confidential – and posting suspicious platforms on their website.

In addition to JPEX, a series of over-the-counter (OTC) crypto trading outlets linked to it were raided and closed down by authorities, triggering demands for regulation in OTC trading. Leung stated that the Securities and Futures Commission (SFC) has been actively gathering opinions from the industry regarding licensing for cryptocurrency OTC trading and custody services.