Hong Kong’s aspirations to establish itself as a leading crypto hub are facing significant challenges, as numerous cryptocurrency exchanges encounter obstacles in securing full licenses due to stringent regulatory concerns.
A Bloomberg report, citing insiders, reveals that the city’s Securities and Futures Commission (SFC) has raised concerns following on-site inspections of 11 exchanges, designated as “deemed-to-be-licensed.” The SFC’s findings suggest that many of these exchanges are falling short of the regulatory requirements necessary for full licensing.
The SFC’s investigation identified a range of deficiencies among the exchanges. These include an overdependence on a limited number of executives for managing client asset custody and inadequate measures to safeguard against cybercrime risks. Prominent exchanges such as Crypto.com and Bullish, along with local platforms like HKbitEX and PantherTrade, are among those under scrutiny.
At present, only two platforms—OSL and HashKey—hold full licenses in Hong Kong. The SFC is aiming to issue additional licenses by the end of 2024, but the rigorous process has already led to the withdrawal of 12 applications, including those from major players such as Bybit, Huobi HK, and OKX.
The regulatory challenges come in the wake of an increased emphasis on enforcing compliance among crypto platforms, with particular focus on protecting client assets and enhancing know-your-client (KYC) protocols. This scrutiny has intensified following the high-profile scandal involving JPEX, an unlicensed platform that allegedly defrauded over 2,600 victims out of more than $200 million.
JPEX had claimed to be a licensed exchange in Hong Kong, but the SFC later confirmed that no application for a virtual asset trading platform license had been submitted by the company. The scandal underscores the need for stricter oversight in Hong Kong’s evolving crypto landscape as the city works to balance innovation with regulation.
Despite the setbacks, Hong Kong remains determined to become a global crypto hub, though the road ahead may require a recalibration of its regulatory approach to accommodate both growth and security in the rapidly evolving cryptocurrency sector.
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