Regulation
Hong Kong cracks down on crypto: on-site inspections for licensing
Hong Kong’s Securities and Futures Commission (SFC) has announced it will conduct on-site inspections of cryptocurrency trading platforms that are still in the process of applying for licenses, as a key deadline approaches .
By June 1, 2024, all virtual asset trading platforms (VATPs) operating in Hong Kong must either be licensed by the SFC or considered to have a temporary license until they are fully licensed. compliant. After the deadline, operating without the necessary licenses will constitute a criminal offense under anti-money laundering and anti-terrorism laws, according to the SFC.
Licensing deadline approaches: SFC reviews customer protection
Over the coming months, as VATPs continue their license applications, the SFC will focus its on-site inspections to ensure these platforms are compliant with regulations, particularly around protecting customer assets and complying with knowledge processes client.
To date, OSL Digital Securities Limited and Hash Blockchain Limited are the only entities fully licensed by the SFC. Of the remainder, eighteen are still in the licensing process, while eleven have withdrawn their applications or been delisted, including notable exchanges OKX and Huobi Hong Kong.
The SFC highlighted that VATPs holding deemed licenses are not yet fully licensed and therefore cannot market their services or on-board new retail customers until they have achieved full license status. Platforms found to be non-compliant during this interim period risk having their application refused and facing additional regulatory action, including the requirement to submit a plan for orderly cessation of their activities in order to protect the interests of customers.
This strict approach aims to ensure that only compliant and secure platforms operate in the Hong Kong crypto market. The recent withdrawals of applications may be part of an effort by the SFC to streamline the process before the deeming agreement takes effect. The decision to introduce on-site inspections underlines the SFC’s commitment to maintaining a robust regulatory environment for virtual asset trading.
Licensed platforms and application withdrawals
The SFC website currently lists OSL Digital Securities and Hash Blockchain as the only fully licensed VATPs. The regulator could update its lists on June 1 to reflect the number of entities deemed to hold a license. The increased licensing requirements come amid a rise in cryptocurrency scams in Hong Kong, prompting the SFC to warn against platforms impersonating the two licensed entities.
Hong Kong’s ambition to become a major crypto hub could face obstacles if many of the 18 applicants fail to meet this crucial deadline. The SFC has clarified that it does not expect applicants to market their services or on-board new retail clients before obtaining a full license. This cautious stance aims to protect investors and ensure that only compliant platforms operate in the market.
Additionally, the SFC is considering allowing staking of Ethereum (ETH) exchange-traded funds (ETFs). Discussions with crypto ETF issuers regarding allowing staking via licensed services are ongoing, which could potentially provide investors with passive income opportunities. If approved, this regulatory change would place Hong Kong ahead of the United States, where staking for Ether ETFs is not yet authorized.
Hong Kong Crypto Hub Aspirations: Challenges and Opportunities
The SFC launched six Bitcoin (BTC) and Ether (ETH) spot ETFs in late April, boosting activity in the Hong Kong crypto market. However, these spot exchange-traded products have seen large net outflows recently, with a notable increase on May 13, seeing a net outflow of 519.5 BTC, an increase of 420% from the net outflow of 99 .99 BTC from the previous Friday.
Of this total, ChinaAMC’s spot product accounted for over 48% of the outflows, losing 251.65 BTC, followed by Harvest with an outflow of 147.86 BTC and Bosera HashKey with 119.99 BTC.
The regulatory landscape in Hong Kong is evolving as the SFC steps up its oversight of crypto platforms. This increased oversight is part of the city’s broader efforts to establish itself as a major crypto hub while ensuring investor protection and market integrity. As the June 1 deadline approaches, the outcome of these license applications will significantly influence the future of the crypto industry in Hong Kong.