Hong Kong’s Securities and Futures Commission (SFC) Plans On-Site Inspections of Crypto Platforms Following Licensing Deadline

Hong Kong’s Securities and Futures Commission (SFC) has declared that it will carry out on-site inspections of local virtual asset trading platforms (VATPs) that have not yet completed their regulatory applications after the June 1 licensing deadline. The SFC’s action serves as a reminder to crypto companies of their obligation to obtain licensing before the deadline. After June 1, all local crypto trading platforms in Hong Kong must be licensed or considered “deemed-to-be-licensed” by the SFC. Operating an unlicensed VATP in Hong Kong after the deadline will be deemed a criminal offense. The SFC plans to conduct on-site inspections in the coming months to ensure compliance with its regulatory requirements, particularly in regards to client asset safeguarding and Know Your Customer (KYC) processes. The SFC strongly advises investors to only trade cryptocurrencies on licensed platforms and warns companies seeking licenses not to market services or onboard new clients until they have obtained formal licensing. The commission also urges companies to prevent mainland Chinese residents from accessing their services. In the lead-up to the licensing deadline, the number of crypto exchanges and companies seeking operational licenses in Hong Kong has decreased. Eleven crypto firms, including OKX and Huobi’s local arm, withdrew their applications prior to the deadline, leaving 18 applications pending approval. Gate.HK, a crypto exchange, suspended all activities related to acquiring new users, marketing, and deposits, and began delisting tokens on May 23. The exchange plans to relaunch its services after restructuring its platform to comply with Hong Kong’s regulatory requirements. Currently, only OSL Digital Securities Limited and Hash Blockchain Limited have been granted licenses to operate in Hong Kong. In other news, Hong Kong has launched its first batch of cryptocurrency-focused ETFs, potentially competing with popular Bitcoin products in the United States. Bitcoin and Ether ETFs were listed in the city by Harvest Global Investments Ltd., the local unit of China Asset Management, and a partnership between HashKey Capital Ltd. and Bosera Asset Management (International) Co. Bloomberg Intelligence estimates that Bitcoin and Ether funds in Hong Kong could accumulate around $1 billion over the next two years, while the CEO of CF Benchmarks predicts that Hong Kong crypto ETFs will amass over $1 billion in assets by the end of 2024.