The Hong Kong Securities and Futures Commission (SFC) is consulting industry participants on whether to introduce a new licensing regime for cryptocurrency over-the-counter (OTC) services.
The proposed regime would see the SFC working alongside the Customs and Excise Department (C&ED) to oversee companies offering crypto OTC trading services.
According to the South China Morning Post, the initial proposal suggested that the C&ED would solely handle regulations and licensing for OTC services.
However, the SFC is now considering broader involvement and has recently reached out to companies providing OTC trading services for their views on the implementation of new licensing requirements, including for cryptocurrency custodian services. Discussions on these licenses are still in their early stages.
The SFC has also released an “alert list” that names suspicious virtual asset trading platforms and unlicensed entities that may be targeting Hong Kong investors. This list includes entities flagged since January 2020.
Hong Kong has been positioning itself as a global cryptocurrency hub, attracting investors and businesses to the digital assets industry. As of June 1, operating an unlicensed virtual asset trading platform (VATP) in Hong Kong became a criminal offense.
Currently, only two virtual asset trading platforms, Hash Blockchain and OSL Digital Securities, hold full licenses to operate in Hong Kong. Other crypto exchanges, including Crypto.com, Bullish, HKbitEX, PantherTrade, Accumulus, DFX Labs, Bixin.com, EX.IO, YAX, WhaleFin, and Matrixport HK, have yet to receive full operational licenses.
Hong Kong’s regulator said it has identified unsatisfactory practices at several cryptocurrency exchanges applying for full licenses, following on-site inspections.
The report highlights concerns that some crypto firms are overly dependent on a limited number of executives to manage the custody of client assets, while others have not adequately safeguarded against cybercrime risks.
The SFC may revoke the “deemed-to-be-licensed” status or reject license applications for platforms that fail to address “critical deficiencies” identified during inspections.
The inspections are part of the SFC’s efforts to regulate crypto trading platforms, with 12 entities, including OKX and ByBit, having already withdrawn their applications. Currently, OSL and HashKey are the only fully licensed exchanges in Hong Kong.
In May, crypto exchanges IBTCEX and QuanXLab withdrew their applications, initially filed in February 2024. The next day, Huobi HK, a crypto exchange with links to HTX, also withdrew its application. The reasons behind these withdrawals were not disclosed on the SFC’s website.
Gate.HK also stopped new user registrations and deposits, and delisted all tokens. All cryptocurrency exchanges that have not applied for a license must cease operations in Hong Kong.
Currently, less than 20 crypto exchanges are lined up for a Hong Kong’s VATP license. The most recent application was submitted by Bitcoin World Technology Limited on behalf of the “bitcoinworld” crypto exchange on May 17.
