- A number of cryptocurrency exchanges could benefit from service licenses in Hong Kong before 2025.
- Increased regulatory scrutiny has caused some major exchanges to withdraw their applications.
Hong Kong’s financial watchdog is set to add more digital asset exchanges to its regulated list by the end of the year.
This follows a five-month review aimed at strengthening crypto oversight in Hong Kong.
The Securities and Futures Commission, or SFC, has indicated that approved exchanges will operate under restrictions until they pass a third-party review, after which they can move to full approval.
“Applicants have taken our feedback into account and are willing to commit resources to resolve the issues,” Eric Yip, SFC’s executive director for intermediaries, said at Hong Kong Fintech Week.
A delicate balance
Hong Kong aspires to become Asia’s leading crypto platform and rival South Korea, Singapore and other countries.
To that end, regulators quickly approved Bitcoin and Ethereum ETFs months after U.S. authorities cleared the way for mass market funds in January.
Yet authorities are also working to curb the rampant fraud plaguing the digital asset market over the past two years.
A number of ghost exchanges such as JPEX have defrauded investors out of hundreds of millions of dollars in deposits, officials say.
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So far, only three exchanges – OSL, HashKey and HKVAX – have met the SFC’s strict requirements.
Bullish, Crypto.com and Matrixport are among 14 platforms in the “deemed to be licensed” category.
Julia Leung, director of the SFC, recently told a local media outlet that the agency aims to grant conditional licenses to companies meeting all requirements by the end of the year.
A greater push
The approach is part of a broader effort to transform Hong Kong into a digital asset powerhouse with a regulatory regime that protects investors.
Although stricter compliance measures may seem beneficial to investors, they have proven too onerous for some exchanges.
OKX, Huobi, Gate.HK and Bybit each withdrew their applications to meet the needs of Hong Kong investors earlier this year.
Although these companies have not specified the reasons for their withdrawal, a major regulatory hurdle appears to be Hong Kong’s restriction on serving mainland Chinese customers.
The JPEX scandal weighs heavily on regulatory pressure.
In September 2023, SFC warned the public about unlicensed activities and false claims of regulatory approval by a Dubai-based exchange called JPEX.
This sparked a wave of fraud complaints that led the exchange to freeze accounts and transactions. When the dust settled, customers reported losses totaling approximately $200 million.
Kyle Baird is the weekend editor for DL News. Do you have any advice? Email to kbaird@dlnews.com.
