Hong Kong Will Inspect Offices of Crypto Platforms as Important Compliance Deadline Looms

As a researcher with experience in the crypto industry and regulatory compliance, I find Hong Kong’s approach to regulating virtual asset trading platforms (VATPs) both intriguing and necessary. The SFC’s announcement that it will conduct on-site inspections of those VATPs seeking licensing before the June 1, 2024, deadline is a critical step in ensuring compliance with anti-money laundering and counter-terrorism laws.

The Securities and Futures Commission (SFC) of Hong Kong has revealed plans to carry out physical inspections at crypto trading platforms that are yet to finalize their licensing applications, with a significant deadline approaching.

Starting from June 1, 2024, any crypto platforms offering virtual asset trading services (VATS) in Hong Kong must obtain a license from the Securities and Futures Commission (SFC) or be classified as “deemed-to-be-licensed,” which is a transitional arrangement for achieving full compliance. After this date, it will become illegal to operate such platforms in Hong Kong without proper authorization, as they would then be violating anti-money laundering and counter-terrorism financing laws.

Over the next few months, while VATP applicants, who are perceived to have been granted licenses, continue with their application process, my team and I at the SFC will carry out on-site inspections. Our primary objective during these inspections will be to ensure that these entities comply with our regulatory standards. We will place a strong emphasis on their adherence to client asset safeguarding protocols and know-your-client procedures.

Two companies, OSL Digital Securities Limited and Hash Blockchain Limited, are currently approved by the SFC for digital securities business. Meanwhile, the applications of eighteen other entities are still under consideration, while eleven have either withdrawn or been taken off the list. Notably, OKX and Huobi Hong Kong have recently withdrawn their applications for licensure.

Significantly, by June 1st, it will be revealed how many of the 18 entities will continue to operate within the SFC’s regulatory framework as “deemed-to-be-licensed” entities. The drive of Hong Kong to establish itself as a significant crypto hub may face scrutiny if several or even some of these 18 applicants fail to progress beyond this critical milestone.

The Securities and Futures Commission (SFC) advised against marketing or signing up new retail customers for regulated services prior to obtaining a full license.

It’s no surprise that the Securities and Futures Commission (SFC) intends to apply more rigorous examination methods than usual during the approval procedure, possibly including on-site inspections, according to Angela Ang, a senior advisor for TRM Labs’ blockchain intelligence team.
Additionally, the recent trend of application withdrawals could be an attempt by the SFC to tidy up their roster before the deeming arrangement takes place.