Hong Kong’s regulator said it has identified unsatisfactory practices at several cryptocurrency exchanges applying for full licenses, following on-site inspections, Bloomberg reported on Thursday, citing sources familiar with the matter.
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.
An SFC spokesperson confirmed that inspections have been conducted, though they are ongoing and subject to change. The spokesperson added that 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.
While the SFC did not name any specific entities with deficiencies, Bloomberg reported that 11 entities, including Crypto.com, HKbitEX, PantherTrade, and Bullish, have applied for full licenses.
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of the SFC’s efforts to regulate crypto trading platforms, with 12 entities, including OKX and ByBit, having already withdrawn their applications.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.
The number of cryptocurrency exchanges seeking operational licenses in Hong Kong is steadily decreasing as the deadline approaches. Most recently, three crypto exchanges withdrew their license applications filed with the SFC.
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.
Under Hong Kong’s new virtual asset regime, the SFC may issue a notice to a firm if it does not qualify for a “deeming arrangement,” which allows a platform to be considered licensed from June 1 while it awaits full approval. Firms that do not qualify must shut down within three months of being notified by the SFC.
