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Eleven cryptocurrency exchanges in Hong Kong, which initially obtained provisional approvals, are now facing heightened regulatory examination.
The Securities and Futures Commission (SFC) of the city conducted on-site evaluations of these “deemed-to-be-licensed” platforms and identified several practices that did not meet regulatory standards, as reported by Bloomberg, citing sources familiar with the matter.
The evaluations indicated that some crypto firms rely excessively on a small number of executives for the custody of client assets, raising concerns regarding their capability to manage these responsibilities effectively.
Some Exchanges Lacked Measures to Protect Against Cybercrime
Furthermore, certain exchanges were found to be deficient in implementing strong measures to guard against cybercrime.
The SFC has not revealed which specific firms did not meet the criteria, and the evaluations are still in progress, leaving room for additional findings.
Among the 11 exchanges under scrutiny are prominent global entities such as Crypto.com and Bullish, as well as local platforms like HKbitEX, PantherTrade, and Matrixport HK.
The SFC stated that these evaluations are part of their initiative to ensure that applicants comply with rigorous requirements, particularly regarding the protection of client assets and adherence to know-your-client (KYC) protocols.
The SFC cautioned that platforms failing to rectify significant deficiencies identified during evaluations could risk losing their “deemed-to-be-licensed” status or have their license applications denied entirely.
HONG KONG CRYPTO PUSH HITS SNAGS
Hong Kong’s digital asset ambitions are encountering headwinds.
Inspections of 11 exchanges with initial approval exposed some operational gaps.
The path to full licensing isn’t guaranteed, adding uncertainty to the city’s Web3 goals.… pic.twitter.com/zPtP14nrK1— Crypto Town Hall (@Crypto_TownHall) August 22, 2024
Licensing cryptocurrency exchanges is a crucial aspect of Hong Kong’s wider Web3 strategy, which was initially outlined in 2022.
The initiative seeks to restore the city’s status as a leading international financial hub, following years of political turmoil.
However, the cautious stance adopted by regulators has yet to yield significant changes in terms of personnel shifts or capital inflows, prompting questions about the strategy’s effectiveness.
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Currently, only two crypto platforms, OSL and HashKey, possess full licenses in Hong Kong.
The SFC anticipates granting full licenses to successful applicants by the end of 2024.
In the meantime, 12 companies, including Huobi HK and OKX, have already retracted their applications.
On March 28, 2024, HKVAEX, believed to be linked with Binance, withdrew its license application.
Following this, on May 14, IBTCEX, QuanXLab, and Huobi HK also withdrew, followed by Gate.HK on May 22 and Bybit (Spark Fintech Limited) on May 31.
Legislator Raises Concern Over Crypto Licensing System
Recently, a member of the Hong Kong Legislative Council expressed criticism regarding the cryptocurrency licensing system, highlighting its effect on market confidence.
The legislator attributed the withdrawals to the stipulation set by the Hong Kong SFC, which mandates that applicants for virtual asset trading platform licenses commit to not servicing mainland Chinese users in any region.
This requirement presents a challenge for traditional offshore exchanges, complicating their compliance efforts.
OKX attempted to establish an industry coalition to contest the requirement but ultimately did not succeed.
Industry insiders have indicated that the entities that have withdrawn their applications might potentially revise their legal structures or entities and reapply in the future.
Meanwhile, Hong Kong has introduced its first batch of ETFs focused on cryptocurrencies, potentially creating competition for popular Bitcoin products in the United States.
The post 11 Hong Kong Crypto Exchange Applicants Face Uncertainty After Inspections appeared first on Cryptonews.
